UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

~~December~~ March 31, ~~2017~~2022

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 000-30205

~~CABOT MICROELECTRONICS CORPORATION~~CMC Materials, Inc.

(Exact name of registrant as specified in its charter)

~~DELAWARE~~	~~36-4324765~~
Delaware		36-4324765
(State of Incorporation)		(I.R.S. Employer Identification No.)

~~870 NORTH COMMONS DRIVE~~	~~60504~~
~~AURORA, ILLINOIS~~
870 North Commons Drive		60504
Aurora, Illinois		(Zip Code)
(Address of principal executive offices)

~~Registrant's~~Registrant’s telephone number, including area code: (630) 375-6631


Not Applicable
(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CCMP	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

~~YES~~

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T ~~(Section~~ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

~~YES~~

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~"large~~“large accelerated filer,~~" "accelerated~~” “accelerated filer,~~" smaller~~” “smaller reporting company,"” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

~~(Do not check if a smaller reporting company)~~

☐

Smaller reporting company



☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange ~~Act~~ Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

~~YES~~

Yes

☐

☒

As of ~~January 31, 2018,~~April 29, 2022, the Company had ~~25,609,060~~28,610,976 shares of Common Stock, par value $0.001 per share, outstanding.

~~CABOT MICROELECTRONICS CORPORATION~~

INDEX

CMC MATERIALS, INC.

FORM 10-Q

INDEX


Part I. Financial Information		Page

Item 1.	Unaudited Financial Statements	3

	Consolidated Statements of ~~Income (Loss) for the Three Months Ended December 31, 2017 and 2016~~Incom e (L oss)	3

	Consolidated Statements of Comprehensive ~~Income for the Three Months Ended December 31, 2017 and 2016~~Incom e (Loss)	4

	Consolidated Balance Sheets ~~as of December 31, 2017 and September 30, 2017~~	5

	Consolidated Statements of Cash Flows ~~for the Three Months Ended December 31, 2017 and 2016~~	6

	Consolidated Statements of Changes in Stockholders’ Equity	7

	Notes to the Consolidated Financial Statements	7 8

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31 25

Item 4.	Controls and Procedures	32 25

Part II. Other Information

Item 1.	Legal Proceedings	33 26

Item 1A.	Risk Factors	33 26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38 35

Item 3.	Defaults Upon Senior Securities	38 35

Item 4.	Mine Safety Disclosures	38 35

Item 6.	Exhibits	39 36

	Signatures	40 37

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CMC MATERIALS, INC.

~~CABOT MICROELECTRONICS CORPORATION~~

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited and in thousands, except per share amounts)


	Three Months Ended December 31,						Three Months Ended March 31,				Six Months Ended March 31,
	2017			2016			2022		2021		2022		2021
Revenue	$	139,979		$	123,254	Revenue	$	324,127	$	290,528	$	641,173	$	578,391

Cost of goods sold		65,965			61,749

Cost of sales						Cost of sales	195,904		166,782		387,114		331,741
Gross profit		74,014			61,505	Gross profit	128,223		123,746		254,059		246,650

Operating expenses:						Operating expenses:
Research, development and technical		12,151			13,396	Research, development and technical	12,337		12,925		25,665		25,353
Selling and marketing		5,836			7,552
General and administrative		18,915			12,496
Selling, general and administrative						Selling, general and administrative	47,111		58,538		103,594		114,458
Impairment charges						Impairment charges	—		208,221		9,435		215,568
Entegris Transaction-related expenses						Entegris Transaction-related expenses	12,243		—		18,293		—
Total operating expenses		36,902			33,444	Total operating expenses	71,691		279,684		156,987		355,379

Operating income		37,112			28,061
Operating income (loss)						Operating income (loss)	56,532		(155,938)		97,072		(108,729)

Interest expense		1,132			1,150
Interest expense, net						Interest expense, net	9,537		9,495		19,280		19,080
Other (expense) income, net						Other (expense) income, net	(1,445)		(484)		(1,597)		968
Income (loss) before income taxes						Income (loss) before income taxes	45,550		(165,917)		76,195		(126,841)

Other income, net		672			996
Income before income taxes		36,652			27,907

Provision for income taxes		39,735			5,676
Provision for (benefit from) income taxes						Provision for (benefit from) income taxes	10,979		(16,109)		14,196		(8,563)

Net income (loss)	$	(3,083	)	$	22,231	Net income (loss)	$	34,571	$	(149,808)	$	61,999	$	(118,278)

Basic earnings (loss) per share	$	(0.12	)	$	0.90	Basic earnings (loss) per share	$	1.21	$	(5.13)	$	2.17	$	(4.06)
Diluted earnings (loss) per share						Diluted earnings (loss) per share	$	1.19	$	(5.13)	$	2.14	$	(4.06)

Weighted average basic shares outstanding		25,326			24,583	Weighted average basic shares outstanding	28,609		29,210		28,526		29,164

Diluted earnings (loss) per share	$	(0.12	)	$	0.88

Weighted average diluted shares outstanding		25,326			25,072	Weighted average diluted shares outstanding	28,999		29,210		28,909		29,164

Dividends per share	$	0.20		$	0.18

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

Three Months Ended December 31,
2017 2016

Net income (loss) $ (3,083 ) $ 22,231

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 7,144 (17,574 )
Unrealized loss on available-for-sale securities (46 ) -
Net unrealized gain on cash flow hedges 199 666

Other comprehensive income (loss), net of tax 7,297 (16,908 )

Comprehensive income $ 4,214 $ 5,323


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Net income (loss)	$	34,571	$	(149,808)	$	61,999	$	(118,278)

Other comprehensive income:

Foreign currency translation adjustment	(11,112)		(13,763)		(13,741)		7,780
Income tax (expense) benefit	(305)		(52)		(268)		30
Total foreign currency translation adjustment, net of tax	(11,417)		(13,815)		(14,009)		7,810

Unrealized gain on cash flow hedges:
Change in fair value	26,508		19,361		31,979		12,912
Reclassification adjustment into earnings	3,578		3,595		7,155		6,969
Income tax expense	(6,869)		(5,140)		(8,935)		(4,451)
Total unrealized gain on cash flow hedges, net of tax	23,217		17,816		30,199		15,430





Other comprehensive income, net of tax	11,800		4,001		16,190		23,240

Comprehensive income (loss)	$	46,371	$	(145,807)	$	78,189	$	(95,038)

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except per share ~~amounts)~~amount)


	December 31, 2017			September 30, 2017				March 31, 2022		September 30, 2021
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	377,230		$	397,890		Cash and cash equivalents	$	237,685	$	185,979
Available-for-sale securities		48,272			-
Accounts receivable, less allowance for doubtful accounts of $1,785 at December 31, 2017, and $1,747 at September 30, 2017		69,871			64,793
Accounts receivable, less allowance for credit losses of $460 at March 31, 2022 and $527 at September 30, 2021							Accounts receivable, less allowance for credit losses of $460 at March 31, 2022 and $527 at September 30, 2021	169,345		150,099
Inventories		73,982			71,873		Inventories	184,730		173,464
Prepaid expenses and other current assets		18,688			16,426		Prepaid expenses and other current assets	35,460		25,439
Total current assets		588,043			550,982		Total current assets	627,220		534,981

Property, plant and equipment, net		107,748			106,361		Property, plant and equipment, net	346,344		354,771
Goodwill		102,740			101,932		Goodwill	564,279		576,902
Other intangible assets, net		40,742			42,710		Other intangible assets, net	584,657		625,434
Deferred income taxes		7,649			21,598		Deferred income taxes	6,256		6,813
Other long-term assets		11,077			10,517		Other long-term assets	71,850		51,984
Total assets	$	857,999		$	834,100		Total assets	$	2,200,606	$	2,150,885

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	14,974		$	17,624		Accounts payable	$	55,540	$	52,748

Current portion of long-term debt		16,406			10,938		Current portion of long-term debt	10,650		13,313
Accrued expenses, income taxes payable and other current liabilities		58,720			62,651
Accrued expenses and other current liabilities							Accrued expenses and other current liabilities	132,738		139,797
Total current liabilities		90,100			91,213		Total current liabilities	198,928		205,858

Long-term debt, net of current portion, less prepaid debt issuance cost of $378 at December 31, 2017 and $441 at September 30, 2017		124,310			132,997
Long-term debt, net of current portion							Long-term debt, net of current portion	899,153		903,031
Deferred income taxes		63			63		Deferred income taxes	74,016		74,930
Other long-term liabilities		41,858			14,790		Other long-term liabilities	84,428		88,129
Total liabilities		256,331			239,063		Total liabilities	1,256,525		1,271,948

Commitments and contingencies (Note 10)
Stockholders' equity:
Common Stock: Authorized: 200,000,000 shares, $0.001 par value; Issued: 35,471,403 shares at December 31, 2017, and 35,230,742 shares at September 30, 2017		35			35
Commitments and contingencies (Note 13)							Commitments and contingencies (Note 13)	0		0

Stockholders’ equity:							Stockholders’ equity:
Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 40,512 shares at March 31, 2022, and 40,221 shares at September 30, 2021							Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 40,512 shares at March 31, 2022, and 40,221 shares at September 30, 2021	41		40
Capital in excess of par value of common stock		593,258			580,938		Capital in excess of par value of common stock	1,080,599		1,052,869
Retained earnings		389,645			397,881		Retained earnings	467,515		431,968
Accumulated other comprehensive income		11,246			3,949		Accumulated other comprehensive income	20,981		4,791
Treasury stock at cost, 9,999,034 shares at December 31, 2017, and 9,948,190 shares at September 30, 2017		(392,516	)		(387,766	)
Total stockholders' equity		601,668			595,037
Treasury stock at cost, 11,900 shares at March 31, 2022, and 11,795 shares at September 30, 2021							Treasury stock at cost, 11,900 shares at March 31, 2022, and 11,795 shares at September 30, 2021	(625,055)		(610,731)
Total stockholders’ equity							Total stockholders’ equity	944,081		878,937

Total liabilities and stockholders' equity	$	857,999		$	834,100
Total liabilities and stockholders’ equity							Total liabilities and stockholders’ equity	$	2,200,606	$	2,150,885

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and amounts in thousands)


	Three Months Ended December 31,							Six Months Ended March 31,
	2017			2016				2022		2021
Cash flows from operating activities:							Cash flows from operating activities:
Net income (loss)	$	(3,083	)	$	22,231		Net income (loss)	$	61,999	$	(118,278)
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:							Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		6,492			6,696		Depreciation and amortization	65,464		64,180
Provision for doubtful accounts		28			46
Share-based compensation expense		5,861			2,913		Share-based compensation expense	10,897		11,170
Deemed repatriation transition tax		24,641			-
Deferred income tax expense		13,465			1,354
Tax benefit from share-based compensation expense		(2,806	)		-
Non-cash foreign exchange (gain)		(657	)		(922	)
(Gain) on disposal of property, plant and equipment		-			(5	)
Deferred income tax benefit							Deferred income tax benefit	(9,546)		(32,771)
Impairment charges							Impairment charges	9,435		215,568
Amortization of terminated interest rate swap contract							Amortization of terminated interest rate swap contract	5,572		3,715
Amortization of debt issuance costs							Amortization of debt issuance costs	1,699		1,549
Accretion on Asset Retirement Obligations							Accretion on Asset Retirement Obligations	300		293
Non-cash foreign exchange loss (gain)							Non-cash foreign exchange loss (gain)	284		(1,392)
Loss on disposal of assets							Loss on disposal of assets	21		560
Other		2,545			919		Other	(608)		(1,933)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable		(4,733	)		(7,879	)	Accounts receivable	(21,454)		(12,352)
Inventories		(1,669	)		(1,725	)	Inventories	(12,752)		(1,423)
Prepaid expenses and other assets		(2,190	)		(368	)	Prepaid expenses and other assets	(1,645)		(16,137)
Accounts payable		(2,847	)		2,734		Accounts payable	6,097		5,261
Accrued expenses, income taxes payable and other liabilities		(4,429	)		(869	)
Accrued expenses and other liabilities							Accrued expenses and other liabilities	(5,556)		5,498
Net cash provided by operating activities		30,618			25,125		Net cash provided by operating activities	110,207		123,508

Cash flows from investing activities:							Cash flows from investing activities:

Additions to property, plant and equipment		(4,175	)		(4,937	)	Additions to property, plant and equipment	(23,310)		(21,119)
Proceeds from the sale of property, plant and equipment		-			5
Purchases of available-for-sale securities		(50,174	)		-
Proceeds from the sale and maturities of available-for-sale securities		1,851			-
Proceeds from the sale of assets							Proceeds from the sale of assets	10		363
Net cash used in investing activities		(52,498	)		(4,932	)	Net cash used in investing activities	(23,300)		(20,756)

Cash flows from financing activities:							Cash flows from financing activities:
Dividends paid							Dividends paid	(26,524)		(26,115)
Proceeds from issuance of stock							Proceeds from issuance of stock	16,834		10,279
Repurchases of common stock under Share Repurchase Program							Repurchases of common stock under Share Repurchase Program	(10,600)		(10,002)
Repayment of long-term debt		(3,281	)		-		Repayment of long-term debt	(7,987)		(5,325)
Repurchases of common stock		(4,741	)		(3,002	)
Proceeds from issuance of stock		6,464			12,489
Dividends paid		(5,057	)		(4,431	)
Tax benefits associated with share-based compensation expense		-			2,544
Net cash provided by (used in) financing activities		(6,615	)		7,600
Repurchases of common stock withheld for taxes							Repurchases of common stock withheld for taxes	(3,724)		(5,436)

Other financing activities							Other financing activities	(264)		(72)
Net cash used in financing activities							Net cash used in financing activities	(32,265)		(36,671)

Effect of exchange rate changes on cash		7,835			(9,558	)	Effect of exchange rate changes on cash	(2,936)		1,401
Increase (decrease) in cash and cash equivalents		(20,660	)		18,235
Increase in cash and cash equivalents							Increase in cash and cash equivalents	51,706		67,482
Cash and cash equivalents at beginning of period		397,890			287,479		Cash and cash equivalents at beginning of period	185,979		257,354
Cash and cash equivalents at end of period	$	377,230		$	305,714		Cash and cash equivalents at end of period	$	237,685	$	324,836

Supplemental disclosure of non-cash investing and financing activities:
Supplemental Cash Flow Information:							Supplemental Cash Flow Information:
Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period	$	1,539		$	2,229		Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period	$	2,177	$	4,180
Cash paid during the period for lease liabilities							Cash paid during the period for lease liabilities	3,730		4,079
Right of use asset obtained in exchange for lease liabilities							Right of use asset obtained in exchange for lease liabilities	294		2,761

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

CMC MATERIALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited and in thousands, except per share amount)


	Three Months Ended March 31,						Six Months Ended March 31,
	2022			2021			2022			2021
	Shares	$		Shares	$		Shares	$		Shares	$
Common Stock:
Beginning balance	40,466	$	40	40,092	$	40	40,221	$	40	39,914	$	40
Issuance of common stock under stock plans	46	1		95	—		291	1		273	—
Ending balance	40,512	41		40,187	40		40,512	41		40,187	40

Capital in Excess of Par:
Beginning balance		1,072,076			1,030,677			1,052,869			1,019,803
Share-based compensation expense		4,894			5,319			10,897			11,170
Exercise of stock options		3,629			5,256			13,122			6,693
Issuance of common stock under Employee Stock Purchase Plan		—			—			3,711			3,371
Issuance of restricted stock under Deposit Share Program		—			—			—			215
Ending balance		1,080,599			1,041,252			1,080,599			1,041,252

Retained Earnings:
Beginning balance		446,193			572,441			431,968			553,718

Net income (loss)		34,571			(149,808)			61,999			(118,278)
Dividends		(13,249)			(13,650)			(26,452)			(26,457)
Ending balance		467,515			408,983			467,515			408,983

Accumulated Other Comprehensive Income (Loss):
Beginning balance		9,181			5,135			4,791			(14,104)

Foreign currency translation adjustment		(11,417)			(13,815)			(14,009)			7,810
Cash flow hedges		23,217			17,816			30,199			15,430

Ending balance		20,981			9,136			20,981			9,136

Treasury Stock:
Beginning balance	11,898	(624,670)		10,931	(499,565)		11,795	(610,731)		10,834	(485,144)
Repurchases of common stock under Share Repurchase Program	—	—		5	(801)		79	(10,600)		67	(10,002)
Repurchases of common stock - other	2	(385)		2	(216)		26	(3,724)		37	(5,436)
Ending balance	11,900	(625,055)		10,938	(500,582)		11,900	(625,055)		10,938	(500,582)

Total Equity		$	944,081		$	958,829		$	944,081		$	958,829

Dividends per share of common stock		$	0.46		$	0.46		$	0.92		$	0.90

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited and in thousands, except ~~share and~~ per share amounts)

1. BACKGROUND AND BASIS OF PRESENTATION

~~Cabot Microelectronics Corporation ("Cabot Microelectronics''~~CMC Materials, Inc. (“CMC”, ~~"the Company''~~“the Company”, ~~"us''~~“us”, ~~"we''~~“we”, or ~~"our''~~“our”) ~~supplies high-performance polishing slurries and pads used~~is a leading global supplier of consumable materials, primarily to semiconductor manufacturers. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of advanced integrated circuit (IC) devices within the semiconductor industry, in a process called chemical mechanical planarization (CMP). CMP polishes surfaces at an atomic level, thereby helping to enable IC device manufacturers to produce smaller, faster and more complex IC devices ~~with fewer defects. We develop, produce and sell CMP slurries for polishing many~~by its customers. On April 1, 2021 (“Acquisition Date”), the Company completed the acquisition of 100% of International Test Solutions, LLC (“ITS”) (“Acquisition”), which has expanded the ~~conducting and insulating materials used in IC devices. We develop, manufacture and sell CMP polishing pads, which are used in conjunction with slurries~~Company’s portfolio of critical enabling solutions in the ~~CMP~~semiconductor manufacturing process. ~~We also develop and provide products for demanding surface modification applications~~The Consolidated Financial Statements included in ~~other industries through our Engineered Surface Finishes (ESF) business. For additional information, refer to Part 1, Item 1, "Business", in our Annual~~this Report on Form ~~10-K~~10-Q include the financial results of ITS from the Acquisition Date. The Acquisition would not have materially affected the Company’s results of operations or financial position for the ~~fiscal year ended September 30, 2017.~~prior periods presented.

We operate our business within 2 reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our chemical mechanical planarization (“CMP”) slurries, CMP pads, electronic chemicals, and materials technologies businesses. The Performance Materials segment consists of our pipeline and industrial materials (“PIM”), wood treatment, and QED Technologies International, Inc. (“QED”) businesses.

The unaudited Consolidated Financial Statements have been prepared by ~~Cabot Microelectronics~~CMC pursuant to the rules of the Securities and Exchange Commission ~~(SEC)~~(“SEC”) and accounting principles generally accepted in the United States of America ~~(U.S. GAAP).~~(“U.S. GAAP” or “GAAP”) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of ~~Cabot Microelectronics'~~CMC’s financial position, ~~as of December 31, 2017,~~ cash flows, ~~for the three months ended December 31, 2017 and December 31, 2016,~~ and results of operations for the ~~three months ended December 31, 2017 and December 31, 2016.~~periods presented. The ~~Consolidated Balance Sheets as of September 30, 2017 were derived from audited financial statements. The~~ results ~~of operations for the three months ended December 31, 2017~~ may not be indicative of the results tothat may be expected for ~~future periods, including~~ the fiscal year ending September 30, ~~2018.~~2022. This Report on Form 10-Q ~~does not contain all of the footnote disclosures from the annual financial statements and~~ should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in ~~Cabot Microelectronics'~~our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~

2021.

The Consolidated Financial Statements include the accounts of ~~Cabot Microelectronics~~CMC and its subsidiaries. All intercompany transactions and balances between the companies have been ~~eliminated as~~eliminated.

In the Consolidated Statements of ~~December~~Income (Loss) of this Report on Form 10-Q, the presentation for Interest income has been changed for the three and six months ended March 31, ~~2017~~.

2021 to conform to the current presentation. The amounts for the three and six months ended March 31, 2021 related to Interest income are now presented under “Interest expense, net.”

USE OF ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The accounting estimates that require management's most difficult and subjective judgments include, but are not limited to, those estimates related to bad debt expense, inventory valuation, valuation and classification of auction rate securities, impairment of long-lived assets and investments, business combinations, goodwill, other intangible assets, interest rate swaps, share-based compensation, income taxes and contingencies. We base our estimates on historical experience, current conditions and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change and estimates and judgments routinely require adjustment. Actual results may differ from these estimates under different assumptions or conditions.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

ASU No. 2019-12 “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes, was issued to simplify Topic 740 through improving consistency and removing certain exceptions to general principles. The Company adopted this standard effective October 1, 2021, which did not have a material impact on our results of operations or financial condition.

ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED

ASU No. 2020-04 “Reference Rate Reform” (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, provides optional guidance for accounting for contracts, hedging relationships, and other transactions affected by the ~~quarter ended~~reference rate reform, if certain criteria are met. The provisions of this standard are available for election through December 31, ~~2017 include a correction to prior period amounts, which we determined to be immaterial to~~2022. We are currently evaluating the prior periods to which they relate and are expected to be immaterial to our fiscal 2018 results. The adjustments, relating primarily to accumulated earnings taxes of a foreign operation, increased the income tax expense for the first quarter of fiscal 2018 by $2,071. Separately, in Note 14 of this Form 10-Q, we discuss the effectsimpact of the ~~Tax Cuts~~reference rate reform on our contracts and ~~Jobs Act ("Tax Act")~~the resulting impact of adopting this standard on our financial statements.

INDEX

2. ~~AVAILABLE-FOR-SALE SECURITIES~~MERGER AGREEMENT

On December 14, 2021, the Company entered into an agreement and plan of merger (“Merger Agreement”) with Entegris, Inc. (“Entegris”) and Yosemite Merger Sub, Inc., a wholly owned subsidiary of Entegris (“Merger Sub”) under which Entegris will acquire the Company in a cash and stock transaction. The Merger Agreement provides that (1) Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Entegris, and (2) at the effective time of the Merger, each issued and outstanding share of CMC common stock (other than (i) shares of CMC common stock owned by the Company, Entegris or any of their respective subsidiaries immediately prior to the effective time of the Merger and (ii) shares of CMC common stock as to which dissenters’ rights have been properly perfected) will be converted into the right to receive $133 in cash and 0.4506 shares of Entegris common stock, plus cash in lieu of any fractional shares (the “Entegris Transaction”). The Merger Agreement was approved by our stockholders at a special meeting held on March 3, 2022.

The Entegris Transaction, which is currently expected to close in the second half of calendar 2022, is subject to the satisfaction of certain customary closing conditions, including, among others, receipt of certain regulatory approvals. The Merger Agreement contains certain termination rights for both CMC and Entegris.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company disaggregates revenue by product area and segment as it best depicts the nature and amount of the Company’s revenue. See Note 16 of this Report on Form 10-Q for more information.

The following table provides information about contract liability balances:


	Consolidated Balance Sheet Location	March 31, 2022		September 30, 2021
Contract liabilities (current)	Accrued expenses and other current liabilities	$	10,254	$	8,883
Contract liabilities (noncurrent)	Other long-term liabilities	3,981		1,788

4. SEVERANCE AND EXIT COSTS

During the first quarter of fiscal ~~2018,~~2022, the Company ~~entered into~~initiated a ~~managed investment arrangement with~~strategic cost optimization program (“Future Forward”) designed to implement structural changes to enhance operational efficiencies. Future Forward includes targeted position eliminations and other actions to reduce expenses.

As a ~~third party~~result of the Future Forward program, the Company recorded the following expenses, which were not allocated to ~~invest in fixed income securities. These assets are~~either of the Company’s 2 reportable segments:


Consolidated Statement of Income (Loss) Location	Three Months Ended March 31, 2022		Six Months Ended March 31, 2022
Employee severance expenses:
Cost of sales	$	2	$	971
Selling, general and administrative	43		2,053
Total	$	45	$	3,024

As of March 31, 2022, liabilities related to Future Forward were classified as ~~available-for-sale securities~~current and ~~are recorded at fair value. We have~~ presented ~~these securities on~~within Accrued expenses and other current liabilities within the Consolidated Balance ~~Sheets~~Sheets. Liability activity for Future Forward for the six months ended March 31, 2022 is as of December 31, 2017 as a current asset due to management's intent to use these funds for current business requirements. Unrealized gains and losses, net of the related tax effect, are recorded within other comprehensive income. Realized gains and losses, interest and dividends are recordedfollows:


Balance at September 30, 2021	$	—
Charge to earnings	3,024
Cash paid	(2,516)

Balance at March 31, 2022	$	508

Additional Future Forward initiatives may be implemented during fiscal 2022 that may result in the other income, net line item of the Consolidated Statements of Income (Loss). Cash flows from purchases, sales and maturities of these securities are presented as investing activities on the Consolidated Statements of Cash Flows.

additional expense or charges.

~~Available-for-sale securities consist of the following as of December 31, 2017:~~

Amortized
Cost

Unrealized
Losses

Estimated
Fair Value

Available-for-sale securities:

Asset backed securities $ 4,460 $ (2 ) $ 4,458
Certificates of deposit 6,303 (4 ) 6,299
Commercial paper 3,083 (1 ) 3,082
Corporate debt securities 25,491 (36 ) 25,455
U.S. Treasuries 8,483 (2 ) 8,481
U.S. government agency securities 498 (1 ) 497
Total available-for-sale securities $ 48,318 $ (46 ) $ 48,272

INDEX

~~The maturities of our available-for-sale securities as of December 31, 2017 are as follows~~

Amortized
Cost
Estimated Fair Value
Mature in one year or less $ 30,587 $ 30,568
Mature after one year through four years 17,731 17,704
$ 48,318 $ 48,272

3.5. FAIR VALUE OF FINANCIAL INSTRUMENTS

~~Fair value~~The Company is ~~defined as the price that would be received from the sale of an asset or paid~~required to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Financial Accounting Standards Board ("FASB") established a three-level hierarchy for disclosure based on the extentrecord certain assets and ~~level of judgment used to estimate~~liabilities at fair value. ~~Level 1 inputs consist~~The valuation methods used for determining the fair value of valuations based on quoted market prices in active markets for identical assets or liabilities. Level 2 inputs consist of valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in an inactive market, or other observable inputs. Level 3 inputs consist of valuations based on unobservable inputs thatthese financial instruments by hierarchy are ~~supported by little or no market activity.~~as follows:

~~INDEX~~


Level 1						Cash and cash equivalents consist of various bank accounts used to support our operations and investments in institutional money-market funds that are traded in active markets. Other long-term investments represent the fair value of investments under our supplemental employee retirement plan (“SERP”). The fair value of the investments is determined through quoted market prices within actively traded markets.
Level 2						Derivative financial instruments include foreign exchange contracts and an interest rate swap contract. The fair value of our derivative instruments is estimated using standard valuation models and market-based observable inputs over the contractual term, including one-month London Inter-bank Offered Rate (“LIBOR”) based yield curves for the interest rate swap, and forward rates and/or the Overnight Index Swap curve for forward foreign exchange contracts, among others.
Level 3						No Level 3 financial instruments

The following table presents financial instruments, other than ~~long-term~~ debt, that we ~~measured~~measure at fair value on a recurring ~~basis at December 31, 2017 and September 30, 2017.~~basis. See Note 811 of this Report on Form 10-Q for a ~~detailed~~ discussion of our ~~long-term~~ debt. ~~We have classified the following assets and liabilities in accordance with the fair value hierarchy set forth in the applicable standards.~~ In instances where the inputs used to measure the fair value of an asset fall into more than one level of the hierarchy, we have classified ~~them~~it based on the ~~lowest-level~~lowest level input that is significant to the determination of the fair value.


	Level 1				Level 2				Level 3				Total Fair Value
	March 31, 2022		September 30, 2021		March 31, 2022		September 30, 2021		March 31, 2022		September 30, 2021		March 31, 2022		September 30, 2021
Assets:
Cash and cash equivalents	$	237,685	$	185,979	$	—	$	—	$	—	$	—	$	237,685	$	185,979
Other long-term investments	1,541		1,439		—		—		—		—		1,541		1,439
Derivative financial instruments	—		—		43,027		12,335		—		—		43,027		12,335
Total assets	$	239,226	$	187,418	$	43,027	$	12,335	$	—	$	—	$	282,253	$	199,753

Liabilities:
Derivative financial instruments	—		—		489		3,383		—		—		489		3,383
Total liabilities	$	—	$	—	$	489	$	3,383	$	—	$	—	$	489	$	3,383

December 31, 2017 Level 1 Level 2 Level 3
Total
Fair Value

Assets:
Cash and cash equivalents $ 377,230 $ - $ - $ 377,230
Other long-term investments 1,157 - - 1,157
Available-for-sale securities:
Asset Backed Securities - 4,458 - 4,458
Certificates of Deposit - 6,299 - 6,299
Commercial Paper - 3,082 - 3,082
Corporate debt securities - 25,455 - 25,455
U.S. Treasuries - 8,481 - 8,481
U.S. government agency securities - 497 - 497
Derivative financial instruments - 379 - 379
Total assets $ 378,387 $ 48,651 $ - $ 427,038

Liabilities:
Derivative financial instruments - 6,046 - 6,046
Total liabilities $ - $ 6,046 $ - $ 6,046

September 30, 2017 Level 1 Level 2 Level 3
Total
Fair Value

Assets:
Cash and cash equivalents $ 397,890 $ - $ - $ 397,890
Other long-term investments 929 - - 929
Derivative financial instruments - 263 - 263
Total assets $ 398,819 $ 263 $ - $ 399,082

Liabilities:
Derivative financial instruments - 1,881 - 1,881
Total liabilities $ - $ 1,881 $ - $ 1,881

Our cash and cash equivalents consist of various bank accounts used to support our operations and investments in institutional money-market funds that are traded in active markets. We are invested exclusively in AAA-rated, prime institutional money market funds, comprised of high quality, fixed income securities. Our other long-term investments represent the fair value of investments under the Cabot Microelectronics Supplemental Employee Retirement Plan (SERP), which is a nonqualified supplemental savings plan. The fair value of the investments is determined through quoted market prices within actively traded markets. Although the investments are allocated to individual participants and investment decisions are made solely by those participants, the SERP is a nonqualified plan. Consequently, the Company owns the assets and the related offsetting liability for disbursement until a participant makes a qualifying withdrawal. The long-term asset was adjusted to $~~1,157~~ ~~in the first quarter of fiscal 2018 to reflect its fair value as of December 31, 2017.~~

We use an investment pricing valuation methodology of a third-party service provider to determine fair values of our available-for-sale securities, consisting of fixed income securities that are under our managed investment arrangement; these are listed in Note 2 of this Form 10-Q. Our available-for-sale securities are valued using a market-based valuation methodology at the end of each reporting period. Market-based valuation is determined on the basis of the last reported sale price or market quotation, typically obtained from the third-party service provider. Market quotations may also include exchange trades and publicly-available bid/offer data from established market makers or quotation systems. All available-for-sale securities are classified as Level 2 based upon other than quoted prices with observable market data.

~~INDEX~~

Our derivative financial instruments include forward foreign exchange contracts and interest rate swaps. In the first quarter of fiscal 2015, we entered into floating-to-fixed interest rate swap agreements to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. In the fourth quarter of fiscal 2017, we entered into forward foreign exchange contracts in an effort to protect our net investment in a foreign operation against potential adverse changes resulting from foreign currency fluctuation. The fair value of our derivative instruments is estimated using standard valuation models and market-based observable inputs over the contractual term, including one-month LIBOR-based yield curves for interest rate swaps, and forward rates and/or the Overnight Index Swap (OIS) curve for forward foreign exchange contracts, among others. We consider the risk of nonperformance, including counterparty credit risk, in the calculation of the fair value of derivative financial instruments. See Note 9 of this Form 10-Q for more information on our use of derivative financial instruments.

4.6. INVENTORIES

Inventories consisted of the following:

	December 31, 2017		September 30, 2017
						March 31, 2022		September 30, 2021
Raw materials	$	38,413	$	36,415	Raw materials	$	72,092	$	67,969
Work in process		6,698		7,365	Work in process	18,705		17,358
Finished goods		28,871		28,093	Finished goods	93,933		88,137
Total	$	73,982	$	71,873	Total	$	184,730	$	173,464

INDEX

5.7. GOODWILL ~~AND OTHER INTANGIBLE ASSETS~~

Goodwill ~~was $102,740~~activity for each of the Company’s reportable segments for the six months ended March 31, 2022 is as follows:


	Electronic Materials		Performance Materials		Total
Balance at September 30, 2021, net of accumulated impairment of $227,126	$	444,233	$	132,669	$	576,902

Foreign currency translation impact	(3,393)		205		(3,188)
Impairment (See Note 8)	—		(9,435)		(9,435)
Balance at March 31, 2022, net of accumulated impairment of $236,561	$	440,840	$	123,439	$	564,279

The Company recorded non-cash, pre-tax goodwill impairment charges of ~~December~~$9,435 for the six months ended March 31, ~~2017,~~2022 and ~~$101,932 as of September 30, 2017. The increase in goodwill was~~$6,671 and $10,752 for the three and six months ended March 31, 2021, respectively, due to ~~$808 in foreign exchange fluctuations~~the previously announced planned closure of the ~~New Taiwan dollar.~~wood treatment business, which the Company completed during the second quarter of fiscal 2022, included in the Performance Materials segment. See Note 8 of this Report on Form 10-Q for a discussion of the wood treatment impairments.

During the second quarter of fiscal 2021, the Company recorded a non-cash, pre-tax goodwill impairment charge of $201,550 related to the PIM reporting unit, included in the Performance Materials segment, due to adverse impacts of the COVID-19 Pandemic (“Pandemic”) and higher raw material cost. The goodwill impairment charge and related tax benefit of $23,539 are presented within Impairment charges and the Provision for (benefit from) income taxes, respectively, in the Consolidated Statements of Income (Loss) for the three and six months ended March 31, 2021.

~~The components~~We continue to monitor the industries in which we operate and our businesses’ performance for indicators of potential impairment. We perform an impairment assessment of goodwill and other intangible assets ~~are~~at the reporting unit level annually, or more frequently if circumstances indicate that the carrying value may not be recoverable. As previously disclosed, the estimated fair value of the PIM reporting unit was determined to exceed the carrying value by approximately 5% as ~~follows:~~of the most recent annual assessment date, July 1, 2021. Potential future impairments could be material to the Company’s Consolidated Balance Sheets and to the Consolidated Statements of Income (Loss), but we do not expect them to affect the Company’s reported Net cash provided by operating activities.

December 31, 2017 September 30, 2017

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Other intangible assets subject to amortization:
Product technology $ 46,351 $ 18,904 $ 42,287 $ 17,604
Acquired patents and licenses 8,270 8,244 8,270 8,241
Trade secrets and know-how 2,550 2,550 2,550 2,550
Customer relationships, distribution rights and other 28,459 16,380 28,229 15,421

Total other intangible assets subject to amortization 85,630 46,078 81,336 43,816

Other intangible assets not subject to amortization:
In-process technology - 4,000
Other indefinite-lived intangibles* 1,190 1,190
Total other intangible assets not subject to amortization 1,190 5,190

Total other intangible assets $ 86,820 $ 46,078 $ 86,526 $ 43,816

8. WOOD TREATMENT

*Other indefinite-lived intangible assetsAs a result of our previously announced planned closure of the Company's wood treatment business, the Matamoros, Mexico and the Tuscaloosa, Alabama facilities ceased production during the first and second quarters of fiscal 2022, respectively, and the remaining inventory was sold to customers during the second quarter of fiscal 2022. The exit of the wood treatment business did not ~~subject~~meet the criteria to ~~amortization consist primarily of trade names.~~

be classified as a discontinued operation in the Company’s financial statements.

During the first quarter of fiscal ~~2018, development~~2022, the Company recorded a non-cash, pre-tax goodwill impairment charge of ~~our in-process technology was completed,~~$9,435, resulting in no remaining carrying value of goodwill or long-lived assets for the wood treatment business. The Company recorded long-lived asset and ~~we reclassified $4,000 to product technology under other intangible assets subject to amortization.~~

~~INDEX~~

~~Amortization expense on our other intangible assets was $1,973~~goodwill impairment charges of $6,671 and ~~$1,999~~$14,018 for the three and six months ended ~~December~~March 31, ~~2017 and 2016,~~2021, respectively. ~~Estimated future amortization expense~~

The impairment charges, included in the Performance Materials segment, are presented within Impairment charges in the Consolidated Statements of Income (Loss) for the ~~five succeeding fiscal years is as follows:~~

Fiscal Year
Estimated
Amortization
Expense

Remainder of 2018 $ 5,521
2019 7,119
2020 7,115
2021 7,108
2022 7,108

Insix months ended March 31, 2022 and the ~~first quarter of fiscal 2018, we adopted~~ ~~ASU No. 2017-04 "Simplifying the Test for Goodwill Impairment."~~three and six months ended March 31, 2021. The ~~provisions of this standard eliminate Step 2 from the~~ goodwill impairment ~~test, which required an entity to determine~~charge is not tax deductible, therefore there is no related tax benefit for the ~~fair value of its assets~~six months ended March 31, 2022 or the three and liabilities at the impairment testing date of its goodwill and compare it to its carrying amount to determine a possible impairment loss. Goodwill impairment testing is now done by comparing the fair value of a reporting unit and its carrying amount.
six months ended March 31, 2021.

Goodwill and indefinite-lived intangible assets are tested for impairment annually in the fourth quarter of the fiscal year or more frequently if indicators of potential impairment exist, using a fair-value-based approach. The recoverability of goodwill is measured at the reporting unit level, which is defined as either an operating segment or one level below an operating segment. An entity has the option to assess the fair value of a reporting unit either using a qualitative analysis ("step zero") or a quantitative analysis ("step one"). Similarly, an entity has the option to use a step zero or a step one approach to determine the recoverability of indefinite-lived intangible assets. In fiscal 2017, we used a step one analysis for both goodwill impairment and indefinite-lived intangible asset impairment.

We completed our annual impairment test during our fourth quarter of fiscal 2017 and concluded that no impairment existed. There were no indicators of potential impairment during the quarter ended December 31, 2017, so it was not necessary to perform an impairment review for goodwill and indefinite-lived intangible assets during the quarter. There have been no impairment charges recorded on the goodwill for any of our reporting units.

6.9. OTHER LONG-TERM ASSETS

~~Other long-term assets consisted of the following:~~

December 31, 2017 September 30, 2017

Auction rate securities (ARS) $ 5,319 $ 5,319
Long-term contract assets 2,333 2,115
Other long-term assets 2,268 2,154
Other long-term investments 1,157 929
Total $ 11,077 $ 10,517

Our ARS investments at December 31, 2017 consisted of two tax exempt municipal debt securities with a total par value of $5,319, both of which have maturities greater than ten years. The fair value of our ARS, determined using Level 2 fair value inputs, was $~~5,040~~ ~~as of December 31, 2017. We have classified our ARS as held-to-maturity securities based on our intention and ability to hold the securities until maturity. We believe the gross unrecognized loss of $279~~ is due to the illiquidity in the ARS market, rather than to credit loss. Although we believe these securities will ultimately be collected in full, we believe that it is not likely that we will be able to monetize the securities in our next business cycle (which for us is generally one year). We will continue to monitor our ARS for impairment indicators, which may require us to record an impairment charge that is deemed other-than-temporary.

In the third quarter of fiscal 2015, we amended a supply agreement with an existing supplier. The amended agreement includes a fee of $4,500, of which we already have paid $3,000, which provides us the option to purchase certain raw materials beyond calendar 2016 through the expiration of the agreement in December 2019. This fee was recorded as a long-term asset at its present value and is being amortized into cost of goods sold on a straight-line basis through the expiration date of the agreement. See Note 10 for more information regarding this agreement.


	March 31, 2022		September 30, 2021
Interest rate swap (See Note 12)	$	36,902	$	12,335
Right of use assets	25,738		29,302
Prepaid unamortized debt issuance cost - revolver	2,151		2,201
SERP investments	1,541		1,439
Vendor contract assets	732		1,329
Other long-term assets	4,786		5,378
Total	$	71,850	$	51,984

INDEX

Other long-term assets are comprised of the long-term portion of prepaid unamortized debt costs, related to our Revolving Credit Facility, as well as miscellaneous deposits and prepayments on contracts extending beyond the next 12 months. As discussed in Note 3, we recorded a long-term asset and a corresponding long-term liability of $~~1,157~~ ~~representing the fair value of our SERP investments as of December 31, 2017.~~

7.10. ACCRUED EXPENSES ~~INCOME TAXES PAYABLE~~ AND OTHER CURRENT LIABILITIES


	March 31, 2022		September 30, 2021
Accrued compensation	$	34,501	$	47,360
Income taxes payable	15,585		16,836
Dividends payable	13,755		13,827
Asset retirement obligation (current)	12,163		11,933
Entegris Transaction-related liabilities	11,593		—
Contract liabilities (current)	10,254		8,883
Taxes, other than income taxes	7,577		6,620
Current portion of operating lease liability	7,328		7,646
Current portion of terminated swap liability (See Note 12)	5,855		5,855
Goods and services received, not yet invoiced	4,859		3,866
Accrued interest	197		1,846
Interest rate swap liability (See Note 12)	—		2,995
Other	9,071		12,130
Total	$	132,738	$	139,797

~~Accrued expenses, income taxes payable and other current liabilities consisted of the following:~~

December 31, 2017 September 30, 2017

Accrued compensation $ 21,303 $ 35,332
Income taxes payable 14,055 9,717
Dividends payable 5,337 5,314
Goods and services received, not yet invoiced 4,968 2,172
Deferred revenue and customer advances 2,491 1,559
Warranty accrual 236 247
Taxes, other than income taxes 1,858 1,688
Current portion of long-term contract liability 1,500 1,500
Other accrued expenses 6,972 5,122
Total $ 58,720 $ 62,651

8.11. DEBT


	March 31, 2022		September 30, 2021
Senior Secured Term Loan Facility, one-month LIBOR plus 2.00%	$	920,388	$	928,375


Less: Unamortized debt issuance costs	(10,585)		(12,031)
Total debt	909,803		916,344
Less: Current maturities and short-term debt	(10,650)		(13,313)
Total long-term debt excluding current maturities	$	899,153	$	903,031

~~On February 13, 2012, we entered into a~~The Company’s credit agreement ~~(the "Credit Agreement"~~as amended (“Amended Credit Agreement”) among the Company, as Borrower, Bank of America, N.A., as administrative agent, swing line lender and an L/C issuer, Bank of America, Merrill Lynch and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, JPMorgan Chase Bank, N.A., as syndication agent, and Wells Fargo Bank, N.A. as documentation agent. The Credit Agreement provided us withincludes a ~~$175,000 term loan (the "Term Loan"~~Senior Secured Term Loan Facility (“Term Loan Facility”)~~, which we drew on February 27, 2012 to fund approximately half of the special cash dividend we paid to our stockholders on March 1, 2012,~~ and a ~~$100,000~~ revolving credit facility ~~(the "Revolving Credit Facility"), which has never been drawn, with sub-limits for multicurrency borrowings, letters of credit and swing-line loans. The Term Loan and the~~ (“Revolving Credit ~~Facility are referred to as the "Credit Facilities." On June 27, 2014, we entered into an amendment (the "Amendment"~~Facility”) to the Credit Agreement, which (i) increased term loan commitments by $17,500, from $157,500 to $175,000, the same level as the original amount under the Credit Agreement at its inception in 2012; (ii) increased the uncommitted accordion feature on the Revolving Credit Facility from $75,000 to $100,000; (iii) extended the expiration date. As of the Credit Facilities from February 13, 2017 to June 27, 2019; (iv) relaxed the consolidated leverage ratio financial covenant; and (v) revised certain pricing terms and other terms within the Credit Agreement. On June 27, 2014, we drew the $17,500 of increased term loan commitments, bringing the totalMarch 31, 2022, there were no borrowings outstanding ~~commitments under the Term Loan to $175,000.~~

Borrowings under the amended Credit Facilities (other than in respect of swing-line loans) bear interest at a rate per annum equal to the "Applicable Rate" (as defined below) plus, at our option, either (1) a LIBOR rate determined by reference to the cost of funds for deposits in the relevant currency for the interest period relevant to such borrowing or (2) the "Base Rate", which is the highest of (x) the prime rate of Bank of America, N.A., (y) the federal funds rate plus 1/2 of 1.00% and (z) the one-month LIBOR rate plus 1.00%. The current Applicable Rate for borrowings under the amended Credit Facilities is 1.50%, with respect to LIBOR borrowings and 0.25% with respect to Base Rate borrowings, with such Applicable Rate subject to adjustment based on our consolidated leverage ratio. Swing-line loans bear interest at the Base Rate plus the Applicable Rate for Base Rate loans under the Revolving Credit Facility. In addition to paying interest on outstanding principal under the Credit Agreement, we pay a commitment fee to the lenders under the Revolving Credit Facility ~~in respect of the unutilized commitments thereunder. As amended, the fee ranges from 0.20% to 0.30%, based on~~and our ~~consolidated leverage ratio. Interest expense and commitment fees are paid according to the relevant interest period and no less frequently than at the end of each calendar quarter. We also pay~~available credit was $350,000, which includes our letter of credit fees as necessary. The Term Loan has periodic scheduled repayments; however, we may voluntarily prepay the Credit Facilities without premium or penalty, subject to customary "breakage" fees and reemployment costs in the case of LIBOR borrowings. All obligations under the Credit Agreement are guaranteed by certain of our existing and future direct and indirect domestic subsidiaries. The obligations under the Credit Agreement and guarantees of those obligations are secured, subject to certain exceptions, by first priority liens and security interests in the assets of the Company and certain of its domestic subsidiaries.sub-facility.

~~INDEX~~

~~As of December~~At March 31, ~~2017~~2022 and September 30, 2017, unamortized debt issuance costs related to our Term Loan that are presented as a reduction of long-term debt were $378 and $441, respectively. Unamortized debt issuance costs related to our Revolving Credit Facility were not material.

The Credit Agreement contains covenants that restrict the ability of the Company and its subsidiaries to take certain actions, including, among other things and subject to certain significant exceptions: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends or amending organizational documents. The Credit Agreement requires us to comply with certain financial ratio maintenance covenants. These include a maximum consolidated leverage ratio of 2.75 to 1.00 and a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00 for the period January 1, 2016 through the expiration of the Credit Agreement. As of December 31, 2017, our consolidated leverage ratio was ~~0.83~~ ~~to 1.00 and our consolidated fixed charge coverage ratio was~~ ~~3.28~~ ~~to 1.00. The Credit Agreement also contains customary affirmative covenants and events of default. We believe we are in compliance with these covenants.~~

~~At December 31, 2017,~~2021, the fair value of the Term Loan Facility, using ~~Level~~level 2 inputs, ~~approximates~~approximated its carrying value ~~of $141,094~~ as the loan bears a floating market rate of interest.

As of ~~December~~March 31, ~~2017, $16,406 of the debt outstanding is classified as short-term.~~

~~Principal repayments of the Term Loan are generally made on the last calendar day of each quarter if that day is considered to be a business day. As of December 31, 2017,~~2022, scheduled principal repayments of the Term Loan ~~were as follows:~~Facility were:

Fiscal Year
Principal
Repayments

Remainder of 2018 7,656
2019 133,438
Total $ 141,094


Fiscal Year	Principal Repayments
Remainder of 2022	$	5,326
2023	10,650
2024	10,650
2025	10,650
2026	883,112

Total	$	920,388

9.12. DERIVATIVE FINANCIAL INSTRUMENTS

We are exposed to various market risks, including risks associated with interest rates and foreign currency exchange rates. We enter into certain derivative transactions to mitigate the volatility associated with these exposures. We have policies in place that define acceptable instrument types we may enter into and we have established controls to limit our market risk exposure. We do not use derivative financial instruments for trading or speculative purposes. In addition, all derivatives, whether designated in hedging relationships or not, are required to be recorded on the Consolidated Balance Sheets at fair value on a gross basis.

INDEX

~~Cash Flow Hedges – Interest Rate Swap Agreements~~CASH FLOW HEDGES - INTEREST RATE SWAP CONTRACT

InDuring the first quarter of fiscal ~~2015, we~~2021, the Company entered into a new interest rate swap agreement to extend the duration of its existing swap arrangement and to take advantage of lower interest rates. At that time, the then existing interest rate swap, which was in a loss position of $35.3 million, was terminated, and the hedging relationship was de-designated. The liability for the terminated interest rate swap is not measured at fair value. The current and long-term portion of the liability for the terminated swap are recorded in Accrued expenses and other current liabilities and Other long-term liabilities, respectively, on the Consolidated Balance Sheet and will be paid over the remaining term of the new swap. The loss amount for the terminated swap is included in Accumulated other comprehensive income and will be amortized on a straight-lined basis into interest expense through January 31, 2024, the remaining term of the original swap.

The new interest rate swap is a floating-to-fixed interest rate swap ~~agreements~~contract to hedge the variability in LIBOR-based interest payments on ~~$86,406~~a portion of our outstanding variable rate debt. The notional amount of the swaps decreases each quarter by an amount in proportion to our scheduled quarterly principal payment of debt. The notional value of the swaps was $70,547 as of December 31, 2017, and the swaps areis scheduled to decrease quarterly and will expire on ~~June 27, 2019.~~

~~We have~~January 29, 2027. The new interest rate swap was designated ~~these swap agreements~~ as a cash flow hedges pursuant to ASC 815, "Derivatives and Hedging". As cash flow hedges, unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. Unrealized gains and losses are designated as effective or ineffectivehedge based on ~~a comparison of~~certain quantitative and qualitative assessments and we have determined that the ~~changes in fair value of the interest rate swaps~~hedge is highly effective and changes in fair value of the underlying exposures being hedged. The effective portion is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion is recorded as a component of interest expense. Changes in the method by which we pay interest from one-month LIBOR to another rate of interest could create ineffectiveness in the swaps, and result in amounts being reclassified from other comprehensive income into net income. Hedge effectiveness is tested quarterly to determine ifqualifies for hedge ~~treatment continues to be appropriate.~~accounting.

FOREIGN CURRENCY CONTRACTS NOT DESIGNATED AS HEDGES

~~Foreign Currency Contracts Not Designated as Hedges~~

~~Periodically we~~We enter into forward foreign exchange contracts in an effort to mitigate the risks associated with currency fluctuations on certain foreign currency balance sheet exposures. These foreign exchange contracts do not qualify for hedge accounting; therefore, the gains and losses resulting from the impact of currency exchange rate movements on our forward foreign exchange contracts are recognized as other income or expense in the accompanying consolidated income statements in the period in which the exchange rates change. As of December 31, 2017 and September 30, 2017, theaccounting.

The notional amounts of the forward contracts we held to purchase U.S. dollars in exchange for foreign currencies were $7,327 and $8,176, respectively, and the notional amounts of forward contracts we held to sell U.S. dollars in exchange for foreign currencies were $21,925 and $24,295, respectively.our derivative instruments are as follows:

~~INDEX~~

~~Net Investment Hedge - Foreign Exchange Contracts~~

In September 2017, we entered into two forward foreign exchange contracts in an effort to protect the net investment of our South Korean subsidiary against potential adverse changes resulting from currency fluctuations in the Korean won. We entered into forward contracts to sell Korean won and buy U.S. dollars, and these contracts will settle in September 2022. We have designated these forward contracts as an effective net investment hedge. The total notional amount under the contracts is 100 billion Korean won. As of December 31, 2017, the change in the fair value of the forward contracts in the net investment hedge relationship was $4,372, which was recorded in foreign currency translation adjustments within other comprehensive income.


	March 31, 2022		September 30, 2021
Derivatives designated as hedging instruments:
Interest rate swap contract - new agreement	$	552,015	$	555,210


Derivatives not designated as hedging instruments:
Foreign exchange contracts to purchase U.S. dollars	$	4,250	$	4,225
Foreign exchange contracts to sell U.S. dollars	29,290		23,235

The fair ~~value~~values of our derivative instruments included in the Consolidated Balance Sheets ~~which was determined using Level 2 inputs, was~~are as follows:


		Derivative Assets				Derivative Liabilities
	Consolidated Balance Sheet Location	March 31, 2022		September 30, 2021		March 31, 2022		September 30, 2021
Derivatives designated as hedging instruments:
Interest rate swap contract	Prepaid expenses and other current assets	$	6,001	$	—	$	—	$	—
	Other long-term assets	36,902		12,335		—		—
	Accrued expenses and other current liabilities	—		—		—		2,995


Derivatives not designated as hedging instruments:
Foreign exchange contracts	Prepaid expenses and other current assets	$	124	$	—	$	—	$	—
	Accrued expenses and other current liabilities	—		—		489		388

Asset Derivatives Liability Derivatives
Consolidated Balance Sheet Location
December 31, 2017
September 30, 2017 December 31, 2017 September 30, 2017
Derivatives designated as hedging instruments
Interest rate swap contracts Prepaid expenses and other current assets $ 181 $ - $ - $ -
Other long-term assets $ 173 $ 117 $ - $ -
Accrued expenses, income taxes payable and other current liabilities $ - $ - $ - $ 31

Foreign exchange contracts designated as net investment hedge Other long-term liabilities $ - $ - $ 5,814 $ 1,442

Derivatives not designated as hedging instruments
Foreign exchange contracts Prepaid expenses and other current assets $ 25 $ 146 $ - $ -
Accrued expenses, income taxes payable and other current liabilities $ - $ - $ 232 $ 408

INDEX

The following table summarizes the ~~effect~~effects of our derivative instruments on our Consolidated Statements of Income (Loss) ~~for the three months ended December 31, 2017 and 2016:~~:

		Loss Recognized in Statements of Income (Loss)
		Three Months Ended											Loss Recognized in Statement of Income (Loss)
	Statements of Income(Loss) Location	December 31, 2017				December 31, 2016					Consolidated Statement of Income (Loss) Location		Three Months Ended March 31,						Six Months Ended March 31,
Derivatives not designated as hedging instruments
												Consolidated Statement of Income (Loss) Location			2022			2021			2022			2021
Derivatives designated as hedging instruments:										Derivatives designated as hedging instruments:
Interest rate swap contract										Interest rate swap contract	Interest expense, net		$	(792)		$	(809)		$	(1,583)		$	(3,254)
Terminated interest rate swap contract										Terminated interest rate swap contract	Interest expense, net		(2,786)			(2,786)			(5,572)			(3,715)

Derivatives not designated as hedging instruments:										Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other income, net		$	(809	)		$	(1,794	)	Foreign exchange contracts	Other (expense) income, net		$	(673)		$	(759)		$	(1,385)		$	(637)

The ~~interest rate swap agreements have been deemed to be effective since inception, so there has been no impact~~following table summarizes the effects of our derivative instruments on ~~our Consolidated Statements of Income (Loss). We recorded a $200 unrealized gain, net of tax, in accumulated~~Accumulated other comprehensive ~~income during the three months ended December 31, 2017 for these interest rate swaps. During the next 12 months, we~~income:


	Gain Recognized in Other Comprehensive Income
	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Derivatives designated as hedging instruments:
Interest rate swap contract	$	26,508	$	19,361	$	31,979	$	12,912

We expect approximately ~~$182~~$5,143 to be reclassified from ~~accumulated~~Accumulated other comprehensive income into ~~interest~~Interest expense, net during the next twelve months related to our interest rate ~~swaps~~swap based on projected rates of the LIBOR forward curve as of ~~December~~March 31, ~~2017.~~2022. This amount includes the amortization of the loss associated with the terminated swap contract.

~~INDEX~~

~~Amounts recognized in other comprehensive income for our net investment hedge during the three months ended December 31, 2017, were as follows:~~

Balance at September 30, 2017 $ 920
Loss on net investment hedge 4,372
Tax benefit (1,131 )
Balance at December 31, 2017 $ 4,161

~~10.~~13. COMMITMENTS AND CONTINGENCIES

~~LEGAL PROCEEDINGS~~

~~While~~In connection with the acquisition of KMG, through our subsidiary KMG-Bernuth, Inc. (“KMG-Bernuth”), as of November 15, 2018, we ~~are not involved in any legal proceedings that we believe will have~~assumed a ~~material impact on our consolidated financial position, results of operations or cash flows, we periodically become a party to legal proceedings in the ordinary course of business.~~

~~Refer to Note 18 of "Notes~~contingency related to the ~~Consolidated Financial Statements"~~Star Lake Canal Superfund Site near Beaumont, Texas (“Star Lake”). In 2014, prior to the acquisition of KMG, the United States Environmental Protection Agency (“EPA”) had notified KMG-Bernuth that the EPA considered it to be a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, in ~~Item 8~~connection with Star Lake. Although KMG-Bernuth has not conceded liability with respect to Star Lake, and has asserted to the EPA and other parties its defenses to any liability, KMG-Bernuth and seven other cooperating parties entered into an agreement with the EPA in September 2016 to complete a remedial design of ~~Part II of our Annual Report on Form 10-K~~the remediation actions for the ~~fiscal year ended September 30, 2017, for additional information regarding commitments~~site and ~~contingencies.~~

~~POSTRETIREMENT OBLIGATIONS IN FOREIGN JURISDICTIONS~~

~~We have defined benefit plans covering employees in certain foreign jurisdictions as required by local law, which are unfunded. Benefit costs, consisting primarily of service costs, are~~ recorded as fringe benefit expense under cost of goods sold and operating expenses in our Consolidated Statements of Income (Loss). The projected benefit obligations and accumulated benefit obligations under all such unfunded plans are updated annually duringa reserve at that time. During the fourth quarter of fiscal 2021, an additional reserve for the anticipated remedial action phase, which will be performed under a separate future agreement, was established for $2,508. As of March 31, 2022, the reserve related to Star Lake was $2,711.

Separately, in fiscal ~~year. Benefit payments under all such unfunded plans to be paid over~~2019, a fire, which involved non-hazardous waste materials and caused no injuries, occurred at a warehouse at the ~~next ten years are expected to be approximately $5,785. For more information regarding these plans, refer to Note 18 of "Notes~~KMG-Bernuth wood treatment facility in Tuscaloosa, Alabama. Although we believe we have completed cleanup efforts related to the ~~Consolidated Financial Statements" included in Item 8~~fire incident, there are potential other related costs that cannot be reasonably estimated as of ~~Part II~~this time due to the nature of ~~our Annual Report on Form 10-K~~federally-regulated requirements for the products produced there. During the second quarter of fiscal ~~year ended September 30, 2017.~~

2022, the Company received a settlement of $3,500 related to the fire incident, and we continue to work with our insurance carriers on possible recovery of losses and costs related to it. At this point we cannot reasonably estimate whether we will receive any additional insurance recoveries, or if so, the amount of such recoveries.

PURCHASE OBLIGATIONS

Purchase obligations include take-or-pay arrangements with suppliers, and purchase orders and other obligations entered into in the normal course of business regarding the purchase of goods and services. We have been operating under a fumed silica supply agreement with Cabot Corporation, our former parent company which is not a related party, the current term of which runs through December 2019. This agreement provides us the option to purchase fumed silica, with no minimum purchase requirements as of 2017, for which ~~we have paid a fee of $1,500 in each of calendar years 2017 and 2018, and for which we will pay in 2019. The $1,500 payment due in 2019 is included in accrued expenses on our Consolidated Balance Sheets. As of December 31, 2017, purchase obligations include $9,749~~$6,818 of contractual commitments ~~related to our Cabot Corporation~~through December 2022 under an abrasive particle supply agreement ~~for fumed silica.~~

and a contractual commitment of $4,478 to purchase non-water based carrier fluid.

INDEX

~~11. ACCUMULATED OTHER COMPREHENSIVE INCOME~~

~~The table below summarizes the components of accumulated other comprehensive income (AOCI), net of tax provision/(benefit), for the three months ended December 31, 2017 and 2016:~~

Foreign
Currency
Translation

Cash Flow
Hedges

Pension and
Other
Postretirement
Liabilities

Available-for-Sale
Securities
Total
Balance at September 30, 2017 $ 5,239 $ 46 $ (1,336 ) $ - $ 3,949
Foreign currency translation adjustment, net of tax of $(1,150) 7,144 - - - 7,144
Unrealized loss on available-for-sale securities, net of tax of $0 - - - (46 ) (46 )
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $80 - 229 - - 229
Reclassification adjustment into earnings, net of tax of $(11) - (30 ) - - (30 )
Balance at December 31, 2017 $ 12,383 $ 245 $ (1,336 ) $ (46 ) $ 11,246

Foreign
Currency
Translation

Cash Flow
Hedges

Pension and
Other
Postretirement
Liabilities
Total
Balance at September 30, 2016 $ 11,985 $ (817 ) $ (1,612 ) $ 9,556
Foreign currency translation adjustment, net of tax of $(2,444) (17,574 ) - - (17,574 )
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $440 - 785 - 785
Reclassification adjustment into earnings, net of tax of $(66) - (119 ) - (119 )
Balance at December 31, 2016 $ (5,589 ) $ (151 ) $ (1,612 ) $ (7,352 )

The before tax amounts reclassified from AOCI to net income during the three months ended December 31, 2017 and 2016, related to our cash flow hedges, were recorded as interest expense on our Consolidated Statement of Income (Loss). For the three months ended December 31, 2017, we recorded $7,144 in currency translation gains, net of tax, primarily due to exchange rate fluctuations in the Japanese yen and Korean won versus the U.S. dollar, that are included in other comprehensive income, including a net loss of $3,241 related to our net investment hedge. These gains and losses primarily relate to changes in the U.S. dollar value of assets and liabilities denominated in local currencies when these asset and liability amounts are translated at month-end exchange rates.

~~INDEX~~

~~12. SHARE-BASED COMPENSATION PLANS~~

We issue share-based awards under the following programs: our Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan, as amended effective March 7, 2017 (OIP); our Cabot Microelectronics Corporation 2007 Employee Stock Purchase Plan, as Amended and Restated January 1, 2010 (ESPP); and, pursuant to the OIP, our Directors' Deferred Compensation Plan, as amended September 23, 2008 (DDCP), and our 2001 Executive Officer Deposit Share Program (DSP). In March 2017, our stockholders reapproved the material terms of performance-based awards under the OIP for purposes of complying with Section 162(m) of the Internal Revenue Code of 1986, as amended. Prior to March 2012, when our stockholders first approved the OIP, we issued share-based payments under our Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan, as amended and restated September 23, 2008 (EIP); our ESPP, and, pursuant to the EIP, the DDCP and DSP. For additional information regarding these programs, refer to Note 13 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. Other than the ESPP, all share-based payments granted beginning March 6, 2012 are made from the OIP, and since then, the EIP no longer has been available for any awards.

We record share-based compensation expense for all share-based awards, including stock option grants, and restricted stock, restricted stock unit and performance share unit ("PSU") awards, and employee stock purchase plan purchases. We calculate share-based compensation expense using the straight-line approach based on awards ultimately expected to vest, which requires the use of an estimated forfeiture rate. Our estimated forfeiture rate is primarily based on historical experience, but may be revised in future periods if actual forfeitures differ from the estimate. We use the Black-Scholes option-pricing model to estimate the grant date fair value of our stock options and employee stock purchase plan purchases. This model requires the input of highly subjective assumptions, including the price volatility of the underlying stock, the expected term of our stock options, expected dividend yield and the risk-free interest rate. We estimate the expected volatility of our stock options based on a combination of our stock's historical volatility and the implied volatilities from actively-traded options on our stock. We calculate the expected term of our stock options using historical stock option exercise data, and for stock option grants made prior to December 2017, we have added a slight premium to this expected term for employees who meet the definition of retirement-eligible pursuant to their stock option grants during the contractual term of the grant. As of December 2017, the provisions of new stock option grants and restricted stock unit awards state that except in certain circumstances including termination for cause, once an employee meets the retirement eligibility requirements, any remaining unvested share-based awards will continue to vest regardless of termination of service. Consequently, the requisite service period for the award is satisfied upon retirement eligibility. Therefore, for those employees who have met the retirement eligibility at the grant date, we now record the total share-based compensation expense upon award; for those employees who will meet the retirement eligibility during the four-year vesting period, we now record the share-based compensation expense over the period from the grant date through the date of retirement eligibility, rather than over the four-year vesting period stated in the award agreement. Due to the change in retirement eligibility for awards as of December 2017, $860 was immediately recorded as expense in the three months ended December 31, 2017.

The expected dividend yield represents our annualized dividend in dollars divided by the stock price on the date of grant. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant.

The PSUs that have been awarded may be subject to downward or upward adjustment depending on the total shareholder return achieved by the Company during the particular performance period related to the PSUs, relative to the total shareholder return of the S&P SmallCap 600 Index. We use a third-party service provider to estimate the fair value of the PSUs at grant date by using a Monte Carlo simulation model. This model simulates the stock price movements of the Company and Index constituents using certain assumptions, including the stock price of our company and Index constituents, the risk-free interest rate and stock price volatility.

In December 2017, we announced the appointment of Scott D. Beamer as our Vice President and Chief Financial Officer, effective as of January 15, 2018, and the intention of William S. Johnson, the Company's then current Executive Vice President and Chief Financial Officer, to retire. Upon the effective date of Mr. Beamer's appointment, Mr. Johnson resigned as our Vice President and Chief Financial Officer, and now is performing transition responsibilities in a senior advisor role until his retirement date in January 2019 (the "Retirement Date"). Mr. Johnson's currently outstanding non-qualified stock option, restricted stock, and restricted stock unit awards under the OIP remain outstanding in accordance with their terms, which include that he will forfeit any unvested awards as of the Retirement Date. Applying the guidance in ASC 718 "Compensation—~~Stock Compensation", we recorded $1,744 of related share-based compensation expense in the three months ended December 31, 2017.~~

~~INDEX~~

In the first quarter of fiscal 2018, we adopted ASU No. 2016-09, "Improvements to Employee Share Based Payment Accounting" (Topic 718) (ASU 2016-09) prospectively. The provisions of this standard relate to aspects of the accounting for share-based payments transactions, including income tax consequences, classification of awards as either equity or liabilities, classification of excess tax benefits on the Consolidated Statements of Cash Flows and earnings per share calculations. Upon adoption, we recorded a tax benefit of $2,806 in our Consolidated Statements of Income (Loss). The net loss, including the impact of the tax benefits, was used to calculate our basic loss per share under the new guidance. In addition, we have elected to continue to estimate forfeitures under ASC 718 pursuant to the adoption of ASU 2016-09.

~~Share-based compensation expense for the three months ended December 31, 2017, and 2016, was as follows:~~

Three Months Ended
December 31,

2017 2016
Income statement classifications:
Cost of goods sold $ 788 $ 541
Research, development and technical 529 419
Selling and marketing 342 339
General and administrative 4,202 1,614
Total share-based compensation expense 5,861 2,913
Tax benefit (1,241 ) (947 )
Total share-based compensation expense, net of tax $ 4,620 $ 1,966

For additional information regarding the estimation of fair value, refer to Note 13 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.

~~13.~~

~~OTHER INCOME, NET~~

~~Other income, net, consisted of the following:~~

Three Months Ended
December 31,

2017 2016

Interest income $ 951 $ 421
Other income (expense) (279 ) 575
Total other income, net $ 672 $ 996

14. INCOME TAXES

The Company's effective tax rate for the first quarter of fiscal 2018 was 108.4%, compared to 20.3% in the same quarter last year. The significant increase is primarily driven by discrete adjustments related to recently enacted Tax Act in the U.S. These adjustments increased the Company'sCompany recorded income tax expense ~~by approximately $32,880~~of $10,979 and ~~had a $1.26 adverse impact on diluted earnings per share. Other factors that impacted~~$14,196 for the ~~Company's~~three and six months ended March 31, 2022, respectively, compared to income tax benefits of $16,109 and $8,563 for the three and six months ended March 31, 2021, respectively. The Company’s effective income tax rate was 24.1% and 18.6% for the three and six months ended March 31, 2022, respectively, compared to 9.7% and 6.8% for the three and six months ended March 31, 2021, respectively. The changes in our effective tax rate for the three and six months ended ~~December~~March 31, ~~2017, as~~2022 compared ~~with~~to the prior year ~~period,~~ were primarily attributable to a lower unfavorable impact from the goodwill impairment charges related to ~~the changes in the mix of foreign~~PIM and ~~domestic earnings~~wood treatment and ~~absence of benefits of~~ a higher tax ~~holiday in South Korea, which expired as of October 2017. The Company currently expects its effective tax rate for the remainder of the fiscal year~~benefit related to ~~be within the range of 21% to 24%. Previously, before the impact of the Tax Act, the Company had estimated an effective tax rate of 24% to 27% for the full fiscal year.~~share-based compensation.

The Tax Act, enacted on December 22, 2017, includes broad and complex changes to the U.S. tax code, including but not limited to: (1) reducing the U.S. federal corporate income tax rate to 21.0% effective January 1, 2018; and (2) requiring a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries that is payable over eight years. For fiscal 2018, we will record our income tax provision using a blended U.S. statutory tax rate of 24.5%, which is based on a proration of the applicable tax rates before and after the Tax Act. The U.S. statutory tax rate of 21.0% will apply for fiscal 2019 and beyond.

1815. EARNINGS (LOSS) PER SHARE


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Numerator:
Net income (loss) available to common shares	$	34,571	$	(149,808)	$	61,999	$	(118,278)

Denominator:
Weighted average common shares	28,609		29,210		28,526		29,164

Weighted average effect of dilutive securities	390		—		383		—
Diluted weighted average common shares	28,999		29,210		28,909		29,164


Earnings (loss) per share:

Basic	$	1.21	$	(5.13)	$	2.17	$	(4.06)

Diluted	$	1.19	$	(5.13)	$	2.14	$	(4.06)

~~INDEX~~

As a result of the Tax Act, the SEC staff issued accounting guidance which provides up to a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act (SAB 118). To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but for which the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

~~In connection with our initial analysis of the impact of the Tax Act, we recorded provisional discrete tax expense of $32,880 in the quarter ended December 31, 2017.~~ For various reasons that are discussed more fully below, we have not completed our accounting for the income tax effects of certain elements of the Tax Act, but we have recorded the following provisional adjustments in the three and six months ended ~~December~~March 31, ~~2017.~~

~~Deemed Repatriation Transition Tax~~: The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries,2021, no dilutive shares were calculated, as well as the amount of non-U.S. withholding taxes on such earnings. We were able to make a reasonable estimate, and recorded a $24,641 of provisional estimate of Transition Tax, which included U.S. federal and state tax implications, for the three months ended December 31, 2017. $22,450 of this estimate was included in the other long-term liabilities as of December 31, 2017. In addition, we also recorded a provisional estimate of $6,381 for non-U.S. withholding taxes to be incurred on actual future distributions of foreign earnings. We are monitoring U.S. federal and state legislative developments for further interpretative guidance and intend to continue to gather additional information to refine provisional estimates during the measurement period provided under SAB 118. Previously, the Company maintained an assertion to permanently reinvest, with certain insignificant exceptions, the earnings of its non-U.S. subsidiaries outside of the U.S., and therefore, did not record U.S. deferred income taxes or foreign withholding taxes for these earnings. In light of the Tax Act and the associated transition to a territorial tax system, the Company is currently analyzing its global capital deployment strategy, including global working capital requirements and thedilutive potential ~~tax implications in various jurisdictions if our non-U.S. subsidiaries distribute some or all of their foreign earnings to the U.S.~~

~~Reduction of U.S. Federal Corporate Tax Rate~~: The Company re-measured its U.S. deferred tax assets and liabilities and recorded a discrete non-cash tax expense of $1,858 based on the rates at which the deferred tax assets and liabilities are expected to reverse in the future. We are still analyzing certain aspects of the Tax Act and the actual impact of the reduction in the U.S. federal corporate tax rate may be affected by the timing of the reversal of such balances.

~~The Company is also analyzing other provisions of the Tax Act to determine if they will impact the Company's effective tax rate in fiscal 2018 or in the future, including the following:~~

~~Global Intangible Low Taxed Income (GILTI):~~ The Tax Act includes a provision designed to tax GILTI. Because of the complexity of these new GILTI provisions, we are continuing to evaluate this provision. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method") or (2) factoring such amounts into a company's measurement of its deferred taxes (the "deferred method"). We are not yet able to reasonably estimate the effect of the GILTI provision of the Tax Act and have not made any adjustments related to potential GILTI tax in our financial statements. If applicable, GILTI tax would first apply to our fiscal year 2019, and will be accounted for as incurred under the period cost method.

~~Base Erosion and Anti-Abuse Tax (BEAT):~~ The Tax Act creates a new minimum BEAT liability for corporations that make base erosion payments if the corporation has sufficient gross receipts and derives a sufficient level of "base erosion tax benefits". If applicable, any BEAT would be accounted for as incurred under the period cost method. We are further assessing the provisions of the BEAT, and will evaluate the effects on the Company's financial statements as further information becomes available. If applicable, the BEAT provisions would first apply to the Company in fiscal year 2019.

~~Foreign Derived Intangible Income (FDII):~~ The Tax Act allows a domestic corporation an immediate deduction in U.S. taxable income for a portion of its FDII. The amount of the deduction will depend in part on the Company's U.S. taxable income. The FDII deduction will be available to us for our fiscal year ending September 30, 2019, and if applicable, will be accounted for under the period cost method. We are still assessing the benefits of the FDII deduction, and will account for the effects on the Company's financial statements in future periods.

~~INDEX~~

The Company previously operated under a tax holiday in South Korea in fiscal years 2013 through 2017 in conjunction with our investment in research, development and manufacturing facilities there, but are no longer under such as of fiscal 2018. This arrangement allowed for a tax at 50% of the local statutory rate in effect for fiscal years 2016 and 2017, following a 0% tax rate in fiscal years 2013, 2014 and 2015. This tax holiday reduced our income tax provision by approximately $826 and increased our diluted earnings per share by approximately $0.03 during the three months ended December 31, 2016.

~~15.~~

~~EARNINGS PER SHARE~~

~~Basic earnings per share (EPS) is calculated by dividing net income available to~~ common stockholders by the weighted-average number of common shares outstanding during the period, excluding the effects of unvested restricted stock awards that have a right to receive non-forfeitable dividends, which are considered participating securities as prescribed by the two-class method under ASC 260 "Earnings per Share". Diluted EPS is calculated in a similar manner, but the weighted-average number of common shares outstanding during the period is increased to include the weighted-average dilutive effect of "in-the-money" stock options and unvested restricted stock shares using the treasury stock method.

~~Enactment of the Tax Act resulted in the incurrence of a net loss for the quarter ending December 31, 2017~~. Pursuant to the adoption of ASU 2016-09 in the first quarter of fiscal 2018, the tax benefits associated with share-based compensation expense were recorded as a tax benefit in our Consolidated Statements of Income (Loss). The net loss, including these tax benefits, was used to calculate our basic loss per share. The number of shares that would be repurchased with the proceeds from the tax benefits was excluded from the diluted weighted average shares outstanding using treasury stock method under the new guidance. Further, since we incurred a net loss in the first quarter of fiscal 2018, when calculating diluted loss per share, we used the basic weighted average shares outstanding, as the inclusion of any dilutive shares in a net loss situation would be anti-dilutive.

The standards of accounting for earnings per share require companies to provide a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations. Basic and diluted earnings per share were calculated as follows:

Three Months Ended
December 31,

2017 2016
Numerator:
Net Income (Loss) $ (3,083 ) $ 22,231
Less: (income) loss attributable to participating securities 11 (102 )
Earnings available to common shares $ (3,072 ) $ 22,129

Denominator:
Weighted average common shares 25,325,757 24,582,688
(Denominator for basic calculation)

Weighted average effect of dilutive securities - 489,477
Diluted weighted average common shares 25,325,757 25,072,165
(Denominator for diluted calculation)

Earnings (loss) per share:

Basic $ (0.12 ) $ 0.90

Diluted $ (0.12 ) $ 0.88

~~For the three months ended December 31, 2017, as noted above, all outstanding stock options were~~Shares excluded from the calculation of ~~diluted~~Diluted earnings per share as the dilutive shares in a net loss situation would be anti-dilutive. For the three months ended December 31, 2016, approximately 0.4 million shares attributable to outstanding stock options were excluded from the calculation of diluted earnings per share ~~because~~ their inclusion would have been ~~anti-dilutive.~~

~~INDEX~~

~~16. FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND PRODUCT LINE~~

~~We operate predominantly in one reportable segment, as defined~~anti-dilutive under ~~ASC 280 "Segment Reporting" –~~ the ~~development, manufacture, and sale of CMP consumables.~~

~~Revenue generated by product line for the three months ended December 31, 2017, and 2016, was~~treasury stock method are as follows:

Three Months Ended December 31,
Revenue: 2017 2016
Tungsten slurries $ 62,877 $ 55,301
Dielectric slurries 31,732 29,282
Polishing pads 18,879 16,209
Other Metals slurries 16,468 15,780
Engineered Surface Finishes 8,530 5,024
Data storage slurries 1,493 1,658
Total revenue $ 139,979 $ 123,254


	Three Months Ended March 31,		Six Months Ended March 31,
	2022	2021	2022	2021
Outstanding stock options	4	—	27	—

16. SEGMENT REPORTING

~~17. NEW ACCOUNTING PRONOUNCEMENTS~~

~~In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), an updated standard~~We identify our segments based on ~~revenue recognition~~. ~~ASU 2014-09 provides enhancements to how revenue is reported~~our management structure and ~~improves comparability in~~ the financial ~~statements~~information used by our chief executive officer, who is our chief operating decision maker, to assess segment performance and allocate resources among our operating units. We have the following 2 reportable segments:

ELECTRONIC MATERIALS

Electronic Materials includes products and solutions for the semiconductor industry and consists of ~~companies reporting using IFRS~~our CMP slurries, CMP pads, electronic chemicals, and ~~U.S. GAAP. The core principle~~materials technologies businesses.

PERFORMANCE MATERIALS

Performance Materials consists of our PIM, wood treatment, and QED businesses.

INDEX

Our chief operating decision maker evaluates segment performance based upon revenue and segment adjusted EBITDA. Segment adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, adjusted for certain items that affect comparability from period to period. These adjustments include impairment charges, Entegris Transaction-related expenses, Future Forward-related expenses, acquisition and integration-related expenses, net costs related to restructuring of the ~~new standard~~wood treatment business, costs related to the Pandemic, net of grants received, and costs related to the KMG-Bernuth warehouse fire, net of recoveries. We exclude these items from earnings when presenting adjusted EBITDA because we believe they are not indicative of a segment’s regular, ongoing operating performance. Adjusted EBITDA is for companies to recognize revenue for goods or services in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard is intended to enhance disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, such as service revenue and contract modifications, and improve guidance for multiple-element arrangements. In August 2015, the FASB issued ASU No. 2015-14, "Deferral of Effective Date" (Topic 606). This standard defers the effective date of ASU 2014-09 by one year. ASU 2014-09 will be effective for us beginning October 1, 2018, and may be applied onalso a full retrospective or modified retrospective approach. In March 2016, the FASB issued ASU No. 2016-08, "Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" (Topic 606). ASU 2016-08 provides clarification for the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, ASU No. 2016-11, and ASU 2016-12, and ASU 2017-13 issued in September 2017, all of which provide additional clarification of the original revenue standard. We continue to work to identify potential differences that would result from applying the requirements of the new standard to our revenue contracts, and identify and implement changes to business processes, systems and controls to support recognition and disclosure under the new standard. We anticipate any changes to revenue recognitionperformance metric for our Company are likely to be related to certain pricing and incentive arrangements with our customers within our CMP consumables business, but we believe the recognition of revenue will remain substantially unchanged for the majority of our contracts with customers. We anticipate we will adopt the new revenue standard in the first quarter of fiscal 2019 using the modified retrospective approach to adoption, which will require us to record the cumulative effect of adopting the standard as an adjustment to the beginning balance of retained earnings. We continue2022 Short-Term Incentive Program (“STIP”). Our chief operating decision maker does not use assets by segment to evaluate ~~the impact of the implementation of these standards on our financial statements.~~performance or allocate resources, and therefore, we do not disclose assets by segment.

~~In July 2015, the FASB issued ASU No, 2015-11, "Simplifying the Measurement of Inventory" (Topic 330).~~ The ~~provisions of ASU 2015-11 require an entity to measure inventory at the lower of cost~~two segments operate independently and ~~net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal,~~serve different markets and ~~transportation. We adopted ASU 2015-11 effective October 1, 2017, and this pronouncement had no material effect on our financial statements.~~

In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" (Subtopic 825-10). The provision of ASU 2016-01 requires equity investments, other than those accounted for under the equity method of accounting or those that result in consolidation, to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 simplifies the impairment assessment of equity securities by permitting a qualitative assessment each reporting period, and makes changes to presentation and disclosure of certain classes of financial assets and liabilities. ASU 2016-01 will be effective for us beginning October 1, 2018, but early adoption is permitted. We are currently evaluating the impact of implementation of this standard on our financial statements.

~~INDEX~~

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). The provisions of ASU 2016-02 require a dual approach for lessee accounting under which a lessee would recognize a right-of-use asset and a corresponding lease liability. Leases will be classified as either finance or operating leases. For finance leases, a lessee will recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee will recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements, to afford better understanding of an entity's leasing activities, including any significant judgments and estimates. ASU 2016-02 will be effective for us beginning October 1, 2019, but early adoption is permitted. We are currently evaluating the impact of implementation of this standard on our financial statements.

In March 2016, the FASB issued ASU No. 2016-05, "Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships" (Topic 815). The provisions of ASU 2016-05 provide clarification that a change in a counterparty of a derivative instrument that has been designatedcustomers, as a ~~hedging instrument does~~result there are no sales between segments. Revenue from external customers by segment are as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021

Electronic Materials:
CMP slurries	$	146,540	$	140,194	$	292,681	$	274,915
Electronic chemicals	95,111		80,098		186,250		160,104
CMP pads	26,815		22,255		50,854		44,326
Materials technologies	6,045		—		12,377		—
Total Electronic Materials	274,511		242,547		542,162		479,345

Performance Materials:
PIM	30,394		25,987		57,029		51,894
Wood treatment	10,907		15,546		25,865		32,869
QED	8,315		6,448		16,117		14,283
Total Performance Materials	49,616		47,981		99,011		99,046

Total	$	324,127	$	290,528	$	641,173	$	578,391

Capital expenditures by segment are as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021

Electronic Materials	$	6,229	$	6,258	$	13,365	$	11,692
Performance Materials	419		957		2,029		2,267
Corporate	3,289		2,500		5,083		5,975
Total	$	9,938	$	9,715	$	20,478	$	19,934

INDEX

Adjusted EBITDA by segment is as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Net income (loss)	$	34,571	$	(149,808)	$	61,999	$	(118,278)
Interest expense, net	9,537		9,495		19,280		19,080
Provision for (benefit from) income taxes	10,979		(16,109)		14,196		(8,563)
Depreciation and amortization	32,762		32,289		65,464		64,180
EBITDA	87,849		(124,133)		160,939		(43,581)
Entegris Transaction-related expenses	12,243		—		18,293		—
Impairment charges	—		208,221		9,435		215,568
Future Forward-related expenses	45		—		3,024		—
Net costs related to restructuring of the wood treatment business	219		46		245		72
Costs related to the Pandemic, net of grants received	—		(421)		—		841
Acquisition and integration-related expenses	(540)		2,167		(233)		4,536
Costs related to KMG-Bernuth warehouse fire, net of recoveries	(3,500)		(1,076)		(3,500)		(1,076)
Consolidated adjusted EBITDA	$	96,316	$	84,804	$	188,203	$	176,360

Segment adjusted EBITDA:
Electronic Materials	$	93,957	$	81,315	$	182,039	$	162,071
Performance Materials	13,901		18,750		28,902		41,725
Unallocated corporate expenses	(11,542)		(15,261)		(22,738)		(27,436)
Consolidated adjusted EBITDA	$	96,316	$	84,804	$	188,203	$	176,360

The unallocated portions of corporate functions, including finance, legal, human resources, information technology, and corporate development, are not require dedesignation of that hedging relationship, provided that all other hedge accounting criteria is met. ASU 2016-05 will be effective for us beginning October 1, 2018, but early adoption is permitted. We do not believe the adoption of this standard will havedirectly attributable to a ~~material effect on our financial statements.~~

In March 2016, the FASB issued ASU No. 2016-07, "Simplifying the Transition to the Equity Method of Accounting" (Topic 323). The provisions of ASU 2016-07 require equity method investors to add the cost of acquiring additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method prospectively as of the date the investment qualifies for the equity method of accounting. ASU 2016-07 will be effective for us beginning October 1, 2018, but early adoption is permitted. We do not believe the adoption of this standard will have a material effect on our financial statements as we currently have no equity method investments.

In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments" (Topic 326). The provisions of this standard require financial assets measured at amortized cost to be presented at the net amount expected to be collected. An allowance account would be established to present the net carrying value at the amount expected to be collected. ASU 2016-13 also provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. ASU 2016-13 will be effective for us beginning October 1, 2020, but early adoption is permitted as of October 1, 2019. We are currently evaluating the impact of implementation of this standard on our financial statements.

In August 2016, the FASB issued ASU No. 2016-15 "Classification of Certain Cash Receipts and Cash Payments" (Topic 230). The provisions of this standard provide guidance on the classification within the Consolidated Statements of Cash Flows of certain types of cash receipts and cash payments in an effort to eliminate diversity in practice. ASU 2016-15 will be effective for us beginning October 1, 2018, but early adoption is permitted. We do not believe the adoption of this standard will have a material effect on our financial statements as we currently do not have any of the cash receipts or payments discussed in this standard.

In October 2016, the FASB issued ASU No. 2016-16 "Intra-Entity Transfers of Assets Other Than Inventory" (Topic 740). The provisions of this standard provide guidance on recognition of taxes related to intra-entity transfer of assets other than inventory when the transfer occurs. ASU 2016-16 will be effective for us beginning October 1, 2018, but early adoption is permitted. We are currently evaluating the impact of implementation of this standard on our financial statements.

In October 2016, the FASB issued ASU No. 2016-17 "Interest Held through Related Parties That Are under Common Control" (Topic 810). The provisions of this standard provide further guidance related to ASU 2015-02, and also provide guidance on consolidation in relation to VIEs and related parties. We adopted ASU 2016-17 effective October 1, 2017, and this pronouncement had no material effect on our financial statements as we currently have no interest in any entities that may be considered VIE.

In January 2017, the FASB issued ASU No. 2017-01 "Clarifying the Definition of a Business" (Topic 805). The provisions of this standard provide guidance to determine whether the acquisition or sale of a set of assets or activities constitutes a business. The standard requires that an integrated set of assets and activities include an input and a substantive process that together contribute to the ability to create output. We adopted ASU 2017-01 effective October 1, 2017, and this pronouncement had no material effect on our financial statements.

In January 2017, the FASB issued ASU No. 2017-04 "Simplifying the Test for Goodwill Impairment" (Topic 350). The provisions of this standard eliminate Step 2 from the goodwill impairment test, which required an entity to determine the fair value of its assets and liabilities at the impairment testing date of its goodwill and compare it to its carrying amount to determine a possible impairment loss. Goodwill impairment testing will now be done by comparing the fair value of a reporting unit and its carrying amount. We adopted ASU 2017-04 effective October 1, 2017 and we will apply the new guidance in our annual test for goodwill impairment in the fourth quarter of fiscal 2018.
reportable segment.

INDEX

In March 2017, the FASB issued ASU No. 2017-07 "Improving the Presentation of Net Period Pension Cost and Net Period Postretirement Benefit Cost" (Topic 715). The provisions of ASU 2017-07 provided specific guidance on the presentation of the components of net benefit cost. ASU 2017-07 will be effective for us beginning October 1, 2018. We are currently evaluating the impact of implementation of this standard on our financial statements.

In May 2017, the FASB issued ASU No. 2017-09 "Scope of Modification Accounting" (Topic 718). The provisions of ASU 2017-09 provide specific guidance about which changes to the term or conditions of a share-based payment require an entity to apply modification accounting. ASU 2017-09 will be effective for us beginning October 1, 2018. We are currently evaluating the impact of implementation of this standard on our financial statements.

In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging" (Topic 815). The provisions of this standard amend the hedge accounting model in ASC 815 to expand an entity's ability to hedge nonfinancial and financial risk components, reduce complexity in fair value hedges of interest rate risk, eliminate the requirement to separately measure and report hedge ineffectiveness, and generally require the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. ASU 2017-12 will be effective for us beginning October 1, 2019, but early adoption is permitted. We are currently evaluating the impact of implementation of this standard on our financial statements.

~~INDEX~~

ITEM 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following ~~"Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations",~~Operations,” as well as disclosures included elsewhere in this Report on Form 10-Q, include ~~"forward-looking statements"~~“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of ~~1995. This~~1995 (“the Act”). The Act provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact we make in this Report on Form 10-Q are ~~forward-looking. In particular,~~forward-looking and address a variety of subjects including, for example, the ~~statements herein regarding~~proposed Entegris Transaction, including expected timing, completion and effects of the proposed transaction; expected savings from our strategic cost optimization program (“Future Forward”); future sales and operating results; growth or contraction, ~~of,~~ and trends in the ~~industry~~industries and markets in which the Company ~~participates;~~participates, such as the ~~Company's management;~~semiconductor, and oil and gas industries; the acquisition of, investment in, or collaboration with other entities, and the expected benefits and synergies of such transactions; divestment or disposition, or cessation of investment in certain of the Company’s businesses; new product introductions; development of new products, technologies and markets; product performance; the financial conditions of the Company’s customers; the competitive landscape that relates to the Company’s business; the Company’s supply chain; natural disasters; various economic or political factors and international or national ~~events; regulatory or legislative activity,~~events, including related to global public health crises such as the COVID-19 pandemic (“Pandemic”), the ongoing conflict between the Russian Federation and Ukraine and sanctions imposed in connection therewith, and the enactment of ~~the Tax Cuts and Jobs Act ("Tax Act") in December 2017 in the United States; product performance;~~trade sanctions, tariffs, or other similar matters; the generation, protection and acquisition of intellectual property, and litigation related to such intellectual property or third party intellectual property; ~~new product introductions; development~~environmental, health and safety laws and regulations, and related compliance and costs of ~~new products, technologies~~compliance; the operation of facilities by the Company; the Company’s management; foreign exchange fluctuation; the Company’s current or future tax rate, including the effects of changes to tax laws in the jurisdictions in which the Company operates; cybersecurity threats and ~~markets; the Company's supply chain; the financial conditions of the Company's customers; natural disasters; the acquisition of or investment in, or collaboration with other entities; uses~~vulnerabilities; and, ~~investment of the Company's cash balance, including dividends and share repurchases, which may be suspended, terminated or modified at any time for any reason, based on a variety of factors;~~ financing facilities and related debt, pay off or payment of principal and interest, and compliance with covenants and other ~~terms;~~terms, uses and investment of the Company's ~~capital structure; the Company's current or future tax rate,~~cash balance. Statements that are not historical facts, including ~~the effects of Tax Act; the operation of facilities by the Company;~~statements about CMC’s beliefs, plans and ~~statements preceded by, followed by or that include the words "intends," "estimates," "plans," "believes," "expects," "anticipates," "should," "could" or similar expressions,~~expectations, are forward-looking statements. ~~Forward-looking~~Such statements ~~reflect our~~are based on current expectations of CMC’s management and are ~~inherently uncertain. Our~~subject to a number of factors and uncertainties, which could cause actual results ~~may~~to differ ~~significantly~~materially from those described in the forward-looking statements. For information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to CMC’s filings with the SEC, including the risk factors contained in our ~~expectations. We assume~~Annual Report on Form 10-K for the fiscal year ended September 30, 2021 and this Report on Form 10-Q. Except as required by law, CMC undertakes no obligation to update ~~this~~ forward-looking ~~information.~~statements made by it to reflect new information, subsequent events or circumstances. The section entitled ~~"Risk Factors"~~“Risk Factors” describes some, but not all, of the factors that could cause these differences.

~~This section, "Management's Discussion~~The following discussion and ~~Analysis of Financial Condition and Results of Operations" (MD&A),~~analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017,~~2021, including the Consolidated Financial Statements and related notes thereto.

RECENT EVENTS

~~FIRST~~During the second quarter of fiscal 2022, the Company continued its Future Forward cost optimization program to enhance operational efficiencies. The Company recorded employee severance expense of $3.0 million for the six months ended March 31, 2022. Additional Future Forward initiatives may be implemented during fiscal 2022 that may result in additional expense or charges.

At a special meeting of the Company’s stockholders held on March 3, 2022, our stockholders approved the agreement and plan of merger (“Merger Agreement”) with Entegris, Inc. (“Entegris”) and Yosemite Merger Sub, Inc., a wholly owned subsidiary of Entegris (“Merger Sub”) under which Entegris will acquire the Company in a cash and stock transaction, which the Company had entered into on December 14, 2021. The Merger Agreement provides that (1) Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Entegris, and (2) at the effective time of the Merger, each issued and outstanding share of CMC common stock (other than (i) shares of CMC common stock owned by the Company, Entegris or any of their respective subsidiaries immediately prior to the effective time of the Merger and (ii) shares of CMC common stock as to which dissenters’ rights have been properly perfected) will be converted into the right to receive $133 in cash and 0.4506 shares of Entegris common stock, plus cash in lieu of any fractional shares (the “Entegris Transaction”).

The Entegris Transaction is subject to the satisfaction of certain customary closing conditions, including, among others, receipt of certain regulatory approvals. The Merger Agreement contains certain termination rights for both the Company and Entegris.

See the section titled “Risk Factors—Risks Relating to the Entegris Transaction” for more information regarding the risks associated with the Entegris Transaction.

INDEX

The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which is filed as Exhibit 2.1 of our Current Report on Form 8-K filed on December 16, 2021.

SECOND QUARTER OF FISCAL ~~2018~~2022 OVERVIEW

While global macroeconomic uncertainty continues worldwide and in the countries and locations in which we and our customers and suppliers operate, our business in our fiscal second quarter of 2022 showed continued resiliency overall. In our ~~first~~Electronic Materials business segment, which represents more than 80% of our revenue, we experienced growth in each of our businesses over the prior year driven by customer technology advancement and increased demand for our products. Our Performance Materials business segment experienced an increase in revenue over the prior year, despite the decline in revenue in the wood treatment business related to the completion of final sales to customers in the second quarter of fiscal ~~2018,~~2022 as planned due to the previously announced exit of this business. Our PIM business achieved its highest revenue quarter since the second quarter of fiscal year 2020 as the business recovers from the impacts of the Pandemic and benefits from the ramp of domestic and international demand.

To date, we ~~experienced~~have not seen a significant impact from the global macroeconomic uncertainty on our ability to manufacture and deliver products to our customers, but we have continued ~~solid~~to experience a rise in certain raw material costs and broad constraints in the global supply chain, including in logistics, and higher freight and logistics costs.

KEY FINANCIAL RESULTS

Our consolidated results of operations are as follows:


(Dollars in thousands)	Three Months Ended March 31,
	2022			2021
Revenue	$	324,127		$	290,528
Net income (loss)	34,571			(149,808)
Adjusted EBITDA	96,316			84,804
Adjusted EBITDA Margin	29.7		%	29.2		%

Our second quarter of fiscal 2022 consolidated revenue benefited from 13.2% growth in the company’s Electronic Materials segment and 3.4% growth in the Performance Materials segment with stronger demand across all our Electronic Materials businesses and PIM and QED products, global price increases, and the addition of the materials technologies business, which represents the acquisition of ITS. Consolidated net income increased driven by the absence of the fiscal 2021 impairment charges recorded for the wood treatment and PIM businesses. Adjusted EBITDA margin increased primarily due to higher revenue and lower operating expenses.

INDEX

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the changes in balances on the Consolidated Statement of Income (Loss):


(Dollars in thousands)	Three Months Ended March 31,								Six Months Ended March 31,
	2022		2021		$ Change		% Change		2022		2021		$ Change		% Change
Revenue	$	324,127	$	290,528	$	33,599	11.6	%	$	641,173	$	578,391	$	62,782	10.9	%
Cost of sales	195,904		166,782		29,122		17.5	%	387,114		331,741		55,373		16.7	%
Gross profit	128,223		123,746		4,477		3.6	%	254,059		246,650		7,409		3.0	%

Operating expenses:
Research, development and technical	12,337		12,925		(588)		(4.5	%)	25,665		25,353		312		1.2	%
Selling, general and administrative	47,111		58,538		(11,427)		(19.5	%)	103,594		114,458		(10,864)		(9.5	%)
Impairment charges	—		208,221		(208,221)		(100.0	%)	9,435		215,568		(206,133)		(95.6	%)
Entegris Transaction-related expenses	12,243		—		12,243		N/M		18,293		—		18,293		N/M
Total operating expenses	71,691		279,684		(207,993)		(74.4	%)	156,987		355,379		(198,392)		(55.8	%)

Operating income (loss)	56,532		(155,938)		212,470		136.3	%	97,072		(108,729)		205,801		189.3	%

Interest expense, net	9,537		9,495		42		0.4	%	19,280		19,080		200		1.0	%
Other (expense) income, net	(1,445)		(484)		(961)		(198.6	%)	(1,597)		968		(2,565)		(265.0	%)
Income (loss) before income taxes	45,550		(165,917)		211,467		127.5	%	76,195		(126,841)		203,036		160.1	%

Provision for (benefit from) income taxes	10,979		(16,109)		27,088		168.2	%	14,196		(8,563)		22,759		265.8	%

Net income (loss)	$	34,571	$	(149,808)	$	184,379	123.1	%	$	61,999	$	(118,278)	$	180,277	152.4	%

Most of CMC’s foreign operations maintain their accounting records in their local currencies. As a result, period to period comparability of results of operations is affected by fluctuations in exchange rates. The impact on comparability is not material in any given period.

REVENUE

The increases in Revenue for the three and six months ended March 31, 2022 compared to the three and six months ended March 31, 2021 were primarily driven by 13.2% and 13.1% growth in the Electronic Materials segment, respectively, due to increased demand for our products, ~~particularly~~global price increases, and the addition of the materials technologies business. Consolidated revenue also increased for ~~memory~~the three months ended March 31, 2022 compared to the three months ended March 31, 2021 due to increased demand for PIM and logic applications, as well as continued strength in China. Some semiconductor industry analysts continue to expect solid industry demand conditions throughout our fiscal year, especially for 3D memory technology. Over the longer term, we continue to believe that semiconductor demand will increase, drivenQED products, partially offset by the ~~continued transition~~exit of the wood treatment business.

COST OF SALES

The increases in ~~memory from 2D to 3D technology; in high end chips for high performance computing, virtual reality, augmented reality, and smart phones; through greater connectivity with the internet~~Cost of things; and with expanding electronics in areas such as automotive applications. We believe we are well positioned to benefit from these long-term demand trends. However, there are many factors that make it difficult for us to predict future revenue trends for our business, including those discussed in Part II, Item 1A entitled "Risk Factors" in this Form 10-Q.

~~Revenue for our first quarter of fiscal 2018 was $140.0 million, which represented an increase of 13.6% from the first quarter of fiscal 2017, and was a quarterly record~~Sales for the ~~Company. We achieved record quarterly revenue in our tungsten slurry~~three and ~~polishing pads product areas. Revenue from our tungsten, pads and dielectrics products increased 13.7%, 16.5% and 8.4%, respectively, from the same quarter last year.~~

~~Gross profit for the first quarter of fiscal 2018 expressed as a percentage of revenue was 52.9%,~~six months ended March 31, 2022 compared to ~~49.9% for our first quarter of fiscal 2017, including 90~~the three and ~~100-basis point adverse impacts of NexPlanar amortization expense, comparatively. Factors affecting our gross profit for the quarter compared~~six months ended March 31, 2021 were primarily due to ~~last year included higher~~increases in sales volume and ~~a higher-valued product mix, partially offset by~~ higher ~~fixed~~ manufacturing, ~~costs, including higher incentive compensation expense. We continue to expect our~~raw material, freight and logistics costs.

GROSS MARGIN

Our gross ~~profit percentage~~margin was 39.6% for ~~full fiscal year 2018 to be between 50%~~both the three and 52%. However, we may continue to experience fluctuations in our gross profit due to a number of factors, including changes in our product mix and the extent to which we utilize our manufacturing capacity, which may cause our quarterly gross profit to be above or below this annual guidance range.

~~INDEX~~

~~Operating expenses were $36.9 million in our first quarter of fiscal 2018~~six months ended March 31, 2022 compared to ~~$33.4 million in~~42.6% for both the ~~first quarter of fiscal 2017, both periods of which included $0.5 million in NexPlanar amortization expense.~~three and six months ended March 31, 2021. The ~~increase in operating expenses from the comparable quarter of fiscal 2017~~decrease was primarily due to higher ~~staffing~~manufacturing, raw material, freight and logistics costs across both segments, partially offset by global price increases.

INDEX

SELLING, GENERAL AND ADMINISTRATIVE

The decrease in Selling, general and administrative expenses for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a $4.2 million decrease in professional fees, a $3.5 million settlement related to the 2019 KMG-Bernuth warehouse fire, a $2.7 million decrease in acquisition and integration related expenses ~~including costs associated with~~and a $1.4 million decrease in Short-Term Incentive Program (“STIP”) expense.

The decrease in Selling, general and administrative expenses for the ~~Chief Financial Officer ("CFO") transition described~~six months ended March 31, 2022 compared to the six months ended March 31, 2021 was primarily due to a $6.9 million decrease in ~~Note 12~~professional fees, a $4.8 million decrease in acquisition and integration related expenses and a $3.5 million settlement related to the 2019 KMG-Bernuth warehouse fire. These decreases were partially offset by $2.1 million of Future Forward-related expenses and a $1.8 million increase in IT expenses.

IMPAIRMENT CHARGES

The Impairment charge for the six months ended March 31, 2022 related to the remaining goodwill balance of the wood treatment business. Impairment charges for the three and six months ended March 31, 2021 related to the impairment of goodwill for the PIM reporting unit, as well as the impairment of long-lived assets and goodwill for the wood treatment business as a result of the planned closure of the wood treatment facilities. See Notes 7 and 8 of “Notes to the Consolidated Financial ~~Statement~~Statements” of this Report on Form 10-Q for more information.

ENTEGRIS TRANSACTION-RELATED EXPENSES

These expenses, which were incurred during the three and six months ended March 31, 2022, relate to the Entegris Transaction. See Note 2 of “Notes to the Consolidated Financial Statements” of this Report on Form 10-Q for more information regarding the Entegris Transaction.

PROVISION FOR INCOME TAXES

The effective income tax rate for the three and six months ended March 31, 2022 was 24.1% and 18.6%, respectively, compared to 9.7% and 6.8% for the three and six months ended March 31, 2021, respectively. The changes in our effective tax rate for the three and six months ended March 31, 2022 compared to the prior year was primarily attributable to a lower unfavorable impact from the goodwill impairment charges related to PIM and wood treatment and a higher tax benefit related to share-based compensation.

INDEX

SEGMENT ANALYSIS

The segment data should be read in conjunction with our unaudited Consolidated Financial Statements and related notes included in Part 1, Item 1 of this Report on Form 10-Q.


(Dollars in thousands)	Three Months Ended March 31,										Six Months Ended March 31,
	2022			2021			$ Change		% Change		2022			2021			$ Change		% Change
Segment Revenue:
Electronic Materials	$	274,511		$	242,547		$	31,964	13.2	%	$	542,162		$	479,345		$	62,817	13.1	%
Performance Materials	49,616			47,981			1,635		3.4	%	99,011			99,046			(35)		—	%
Total Revenue	$	324,127		$	290,528		$	33,599	11.6	%	$	641,173		$	578,391		$	62,782	10.9	%

Adjusted EBITDA:
Electronic Materials	$	93,957		$	81,315		$	12,642	15.5	%	$	182,039		$	162,071		$	19,968	12.3	%
Performance Materials	13,901			18,750			(4,849)		(25.9	%)	28,902			41,725			(12,823)		(30.7	%)
Unallocated corporate expenses	(11,542)			(15,261)			3,719		24.4	%	(22,738)			(27,436)			4,698		17.1	%
Consolidated adjusted EBITDA	$	96,316		$	84,804		$	11,512	13.6	%	$	188,203		$	176,360		$	11,843	6.7	%

Adjusted EBITDA margin:
Electronic Materials	34.2		%	33.5		%	70 bpts				33.6		%	33.8		%	-20 bpts
Performance Materials	28.0		%	39.1		%	-1,110 bpts				29.2		%	42.1		%	-1,290 bpts

ELECTRONIC MATERIALS

The increases in revenue for the three and six months ended March 31, 2022 compared to the three and six months ended March 31, 2021 were driven by growth across all segment businesses and the addition of the materials technologies business. CMP slurries increased 4.5% and 6.5%, respectively, driven by customer technology advancement and increased demand for the Company’s products. CMP pads increased 20.5% and 14.7%, respectively, due to increased demand and new position wins. Electronic chemicals increased 18.7% and 16.3%, respectively, driven by price increases, increased customer demand, and new position wins.

The increases in adjusted EBITDA for the three and six months ended March 31, 2022 compared to the three and six months ended March 31, 2021 were primarily driven by the revenue growth across all segment businesses, partially offset by higher manufacturing, raw material, freight and logistics costs.

The increase in adjusted EBITDA margin for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily driven by revenue growth across all segment businesses. The decrease in adjusted EBITDA margin for the six months ended March 31, 2022 compared to the six months ended March 31, 2021 was primarily driven by higher manufacturing, raw material, freight and logistics costs.

PERFORMANCE MATERIALS

The increase in revenue for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily driven by 17.0% and 29.0% increases in PIM and QED revenue, respectively, due to increased demand for these products. The increases were partially offset by the exit of the wood treatment business, which was completed during the second fiscal quarter of 2022.

Revenue for the six months ended March 31, 2022 was essentially flat compared to the six months ended March 31, 2021, as increased demand for PIM and QED products was offset by the exit of the wood treatment business.

The decreases in adjusted EBITDA and adjusted EBITDA margin for the three and six months ended March 31, 2022 compared to the three and six months ended March 31, 2021 were primarily driven by the exit of the wood treatment business and higher ~~incentive compensation expense.~~ raw material costs in the PIM business.

INDEX

USE OF CERTAIN GAAP AND NON-GAAP FINANCIAL INFORMATION

We ~~currently expect~~provide certain non-GAAP financial measures, such as adjusted EBITDA and adjusted EBITDA margin, in addition to reported GAAP results because we believe that analysis of our financial performance is enhanced by an understanding of these non-GAAP financial measures. We exclude certain items from earnings when presenting adjusted EBITDA because we believe they will be incurred infrequently and/or are otherwise not indicative of the Company’s regular, ongoing operating performance. Accordingly, we believe that they aid in evaluating the underlying operational performance of our business, and facilitate comparisons between periods. In addition, adjusted EBITDA is used as one of the performance goals of our fiscal 2022 STIP. A similar adjusted EBITDA calculation is also used by our lenders for a key debt compliance ratio.

Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of revenue. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, adjusted for certain items that affect comparability from period to period. These adjustments include impairment charges, Entegris Transaction-related expenses, Future Forward-related expenses, acquisition and integration-related expenses, net costs related to restructuring of the wood treatment business, costs related to the Pandemic, net of grants received, and costs related to the KMG-Bernuth warehouse fire, net of recoveries.

The non-GAAP financial measures provided are a supplement to, and not a substitute for, ~~full fiscal year 2018~~the Company’s financial results presented in accordance with U.S. GAAP. Management strongly encourages investors to ~~be between $145.0 million~~review the Company’s Consolidated Financial Statements in their entirety and ~~$150.0 million; previously,~~to not rely on any single financial measure. A reconciliation table of GAAP to non-GAAP financial measures is below.

Adjusted EBITDA for the Electronic Materials and Performance Materials segments is presented in conformity with Accounting Standards Codification Topic 280, Segment Reporting. This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For these reasons, this measure is excluded from the definition of non-GAAP financial measures under SEC Regulation G and Item 10(e) of Regulation S-K.

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA


	Three Months Ended March 31,				Six Months Ended March 31,
(In thousands)	2022		2021		2022		2021
Net income (loss)	$	34,571	$	(149,808)	$	61,999	$	(118,278)
Interest expense, net	9,537		9,495		19,280		19,080
Provision for (benefit from) income taxes	10,979		(16,109)		14,196		(8,563)
Depreciation and amortization	32,762		32,289		65,464		64,180
EBITDA	87,849		(124,133)		160,939		(43,581)
Entegris Transaction-related expenses	12,243		—		18,293		—
Impairment charges	—		208,221		9,435		215,568
Future Forward-related expenses	45		—		3,024		—
Net costs related to restructuring of the wood treatment business	219		46		245		72
Costs related to the Pandemic, net of grants received	—		(421)		—		841
Acquisition and integration-related expenses	(540)		2,167		(233)		4,536
Costs related to KMG-Bernuth warehouse fire, net of recoveries	(3,500)		(1,076)		(3,500)		(1,076)
Adjusted EBITDA	$	96,316	$	84,804	$	188,203	$	176,360


	Three Months Ended March 31,				Six Months Ended March 31,
(In thousands)	2022		2021		2022		2021
Adjusted EBITDA:
Electronic Materials	$	93,957	$	81,315	$	182,039	$	162,071
Performance Materials	13,901		18,750		28,902		41,725
Unallocated corporate expenses	(11,542)		(15,261)		(22,738)		(27,436)
Consolidated adjusted EBITDA	$	96,316	$	84,804	$	188,203	$	176,360

INDEX

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2022, we had ~~expected operating expenses~~$237.7 million of cash and cash equivalents compared with $186.0 million as of September 30, 2021. On March 31, 2022, $155.0 million of cash and cash equivalents was held in foreign subsidiaries. Our total liquidity as of March 31, 2022 was $587.7 million compared to ~~be within a range~~$536.0 million as of ~~$142.0~~September 30, 2021 (including $350.0 million of borrowing availability under our revolving credit facility (“Revolving Credit Facility”) in both periods, which includes our letter of credit sub-facility). The increase in liquidity reflects the cash flow provided by operations, partially offset by cash used for the payment of dividends, capital expenditures, and repurchases of our common stock.

Total debt, consisting of principal outstanding on our Senior Secured Term Loan Facility (“Term Loan Facility”), amounted to ~~$147.0 million.~~

$909.8 million ($920.4 million in aggregate principal amount less $10.6 million of debt issuance costs) as of March 31, 2022 and $916.3 million ($928.4 million in aggregate principal amount less $12.0 million of debt issuance costs) as of September 30, 2021. During the three months ended March 31, 2022 there were no borrowings under our Revolving Credit Facility and no balance was outstanding as of March 31, 2022.

The Revolving Credit Facility requires that the Company ~~reported~~maintain a ~~diluted loss~~maximum first lien secured net leverage ratio, as defined in the credit agreement as amended (“Amended Credit Agreement”), of 4.00 to 1.00 as of the last day of each fiscal quarter. As of March 31, 2022, our maximum first lien secured net leverage ratio was 1.70 to 1.00. Additionally, the Amended Credit Agreement contains certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, asset sales and acquisitions, pay dividends and make other restricted payments and enter into transactions with affiliates. We believe we are in compliance with these covenants as of March 31, 2022 and we expect to remain in compliance with our debt covenants in the future.

Under the Merger Agreement, we are prohibited from incurring any additional indebtedness or issuing or selling any debt securities or rights to acquire debt securities, subject to certain exceptions.

The Merger Agreement limits our ability to repurchase shares of our common stock, subject to certain exceptions. As a result, we did not repurchase any shares under our share repurchase program during the second quarter of fiscal 2022.

Our Board of Directors authorized the initiation of our quarterly cash dividend program in January 2016, and since that time has increased the dividend to its current level of $0.46 per share. The terms of the Merger Agreement limit the Company’s ability to declare and pay future quarterly cash dividends, except the Company may declare quarterly cash dividends in an amount not to exceed $0.46 per share, ~~of $0.12~~in a manner consistent with the Company's past practices, in the event the Entegris Transaction has not closed by December 14, 2022.

We believe that cash on hand, cash available from future operations, and available borrowing capacity under our Amended Credit Agreement will be sufficient to fund our operations, expected capital expenditures, and dividend payments for at least the next twelve months.

OPERATING ACTIVITIES

We generated $110.2 million in cash flows from operating activities in the first ~~quarter~~six months of fiscal ~~2018,~~2022, compared to ~~diluted earnings per share of $0.88~~$123.5 million in the ~~same quarter last year.~~first six months of fiscal 2021. The ~~year-over-year~~ decrease was driven by $16.1 million of changes in operating assets and liabilities, partially offset by a $2.8 million increase in Net income adjusted for non-cash reconciling items.

INVESTING ACTIVITIES

In the first six months of fiscal 2022, net cash used in investing activities was $23.3 million, compared to $20.8 million in the first six months of fiscal 2021. This was primarily ~~due~~driven by an increase in capital expenditures of $2.2 million.

FINANCING ACTIVITIES

In the first six months of fiscal 2022, cash flows used in financing activities were $32.3 million, compared to $36.7 million in the first six months of fiscal 2021. This was primarily driven by an increase in proceeds from the issuance of stock, related to higher stock option exercises during the first six months of fiscal 2022, partially offset by an increase in repayment of long-term debt.

CONTRACTUAL OBLIGATIONS

There have been no material changes to the ~~impact~~Company’s significant contractual obligations during fiscal 2022, except as discussed below.

INDEX

We have been operating under a multi-year supply agreement for the purchase of certain raw materials, which runs through December 2022. As of March 31, 2022, purchase obligations include an aggregate amount of $6.8 million of contractual commitments related to this agreement. In addition, we have a purchase commitment of $4.5 million through December 2022 for non-water based carrier fluid.

Refer to Item 7 of Part II of our Annual Report on Form 10-K for the ~~enactment of the Tax Act in December 2017, which reduced diluted earnings per share by $1.26.~~fiscal year ended September 30, 2021 for additional information regarding our contractual obligations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

We discuss our critical accounting estimates and effects of recent accounting pronouncements in ~~"Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” included in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017. There have been no material changes in our critical accounting estimates during the first three months of fiscal 2018.~~2021. See Note 21 of ~~the Notes~~“Notes to the Consolidated Financial ~~Statements~~Statements” of this Report on Form 10-Q for ~~our accounting policy regarding available-for-sale securities. See Note 17 of the Notes to the Consolidated Financial Statements of this Form 10-Q for a discussion of new accounting pronouncements.~~updates.

~~INDEX~~

~~RESULTS OF OPERATIONS~~

~~THREE MONTHS ENDED DECEMBER 31, 2017, VERSUS THREE MONTHS ENDED DECEMBER 31, 2016~~

~~REVENUE~~

Revenue was $140.0 million for the three months ended December 31, 2017, which represented a 13.6%, or $16.7 million, increase from the three months ended December 31, 2016. The increase in revenue was driven by a $12.9 million increase due to higher sales volume, a $5.8 million increase due to product mix, partially offset by a $1.9 million decrease due to price changes. The increase in sales volume was consistent with continued overall strong demand conditions in the global semiconductor industry. Revenue from our tungsten, pads and dielectrics products increased 13.7%, 16.5% and 8.4%, respectively, from the comparable period of fiscal 2017.

~~COST OF GOODS SOLD~~

Total cost of goods sold was $66.0 million for the three months ended December 31, 2017, which represented an increase of 6.8%, or $4.2 million, from the three months ended December 31, 2016. The increase in cost of goods sold was primarily due to a $3.0 million increase in fixed manufacturing costs, including higher incentive compensation expense and, a $2.9 million increase due to higher sales volume, partially offset by a $1.4 million decrease in other variable manufacturing costs, including material costs, and adverse foreign exchange effects of $0.5 million. Fixed manufacturing costs included $1.2 million of NexPlanar amortization in the first quarters of fiscal years 2018 and 2017.

~~GROSS PROFIT~~

Our gross profit as a percentage of revenue was 52.9% for the three months ended December 31, 2017, compared to 49.9% for the three months ended December 31, 2016. The increase in gross profit as a percentage of revenue was primarily due to higher sales volume and a higher-valued product mix, partially offset by higher fixed manufacturing costs, including costs associated with incentive compensation expense.

~~RESEARCH, DEVELOPMENT AND TECHNICAL~~

Total research, development and technical expenses were $12.1 million for the three months ended December 31, 2017, which represented a decrease of 9.3%, or $1.2 million, from the three months ended December 31, 2016. The decrease was primarily due to lower staffing related expenses of $0.5 million, lower professional expenses of $0.4 million, and lower depreciation and amortization expense of $0.3 million.

~~Our research, development and technical efforts are focused on the following main areas:~~

·	~~Research related to fundamental CMP technology;~~

·	~~Development of new and enhanced CMP consumable products, including collaboration on joint development projects with technology-leading customers and suppliers;~~

·	~~Process development to support rapid and effective commercialization of new products;~~

·	~~Technical support of CMP products in our customers' research, development and manufacturing facilities; and,~~

·	~~Development of polishing and metrology applications outside of the semiconductor industry.~~

~~INDEX~~

~~SELLING AND MARKETING~~

Selling and marketing expenses were $5.8 million for the three months ended December 31, 2017, which represented a decrease of 22.7%, or $1.7 million, from the three months ended December 31, 2016. The decrease was primarily due to the absence of severance expense of $0.7 million, and lower staffing related costs of $0.5 million.

~~GENERAL AND ADMINISTRATIVE~~

General and administrative expenses were $18.9 million for the three months ended December 31, 2017, which represented an increase of 51.4%, or $6.4 million, from the three months ended December 31, 2016. The increase was primarily due to costs of $2.8 million associated with the CFO transition described above, higher staffing related expenses of $1.2 million, higher share-based compensation expense of $0.8 million, higher incentive compensation expenses of $0.6 million, higher legal and professional fees of $0.4 million and higher information and technology expenses of $0.4 million.

~~INTEREST EXPENSE~~

Interest expense was $1.1 million for the three months ended December 31, 2017, and was comparable to $1.2 million for the three months ended December 31, 2016. The interest rate on 50% of our outstanding debt continues to be fixed through interest rate swaps, while we maintain a variable interest rate on the rest of our outstanding debt.

~~OTHER INCOME, NET~~

~~Other income was $0.7 million for the three months ended December 31, 2017, and comparable to $1.0 million during the three months ended December 31, 2016.~~

~~PROVISION FOR INCOME TAXES~~

The Company's effective tax rate for the first quarter of fiscal 2018 was 108.4 percent, compared to 20.3 percent in the same quarter last year. The significant increase is primarily driven by discrete adjustments related to the impact of the Tax Act. These adjustments increased the Company's income tax expense by approximately $32.9 million. The Company currently expects its effective tax rate for the remainder of the fiscal year to be within the range of 21 to 24 percent. Previously, before the impact of the Tax Act, the Company had estimated an effective tax rate of 24 to 27 percent for the full fiscal year. See Note 14 of the Notes to the Consolidated Financial Statements of this Form 10-Q for more information on our income taxes.

~~NET INCOME (LOSS)~~

Net loss was $3.1 million for the three months ended December 31, 2017, which represented a decrease of 113.9%, or $25.3 million, from the three months ended December 31, 2016. The significant decrease was primarily related to the impact of the Tax Act. One-time effects of the Tax Act increased the Company's income tax expense by approximately $32.9 million, and therefore decreased the Company's net income by the same amount.

~~INDEX~~

~~LIQUIDITY AND CAPITAL RESOURCES~~

We generated $30.6 million in cash flows from operating activities in the first three months of fiscal 2018, compared to $25.1 million in cash from operating activities in the first three months of fiscal 2017. Our cash provided by operating activities in the first three months of fiscal 2018 reflected a net loss of $3.1 million, $49.6 million in non-cash items, including $24.6 million related to the deemed repatriation transition tax of the Tax Act, and a $15.9 million net decrease in working capital. The increase in cash flows from operating activities compared to the first three months of fiscal 2017 was primarily due to higher revenue and gross margin, and also reflected the non-cash impacts of the Tax Act, ~~and~~ changes in the timing and amount of accrued expense payments, including payments related to our Short-Term Incentive Program ("STIP"), and a higher accounts receivable balance at December 31, 2017, due to an increase in revenue. W~~e are still analyzing certain aspects of the Tax Act, which could potentially affect the measurement of these balances or give rise to new deferred tax amounts.~~ Our accruals for incentive compensation under our STIP are higher in fiscal 2018 than in fiscal 2017. In addition, the STIP payment in the first quarter of fiscal 2018 related to our performance in fiscal 2017 was $14.1 million higher than the STIP payment related to our performance in fiscal 2016, which was paid in the first quarter of fiscal 2017.

In the first three months of fiscal 2018, cash flows used in investing activities were $52.5 million, representing $48.3 million in purchases of investments designated as available-for-sale securities, net of $1.9 million in sales proceeds, under a managed investment arrangement, and property, plant and equipment additions of $4.2 million. In the first three months of fiscal 2017, cash flows used in investing activities were $4.9 million for purchases of property, plant and equipment. We continue to expect our total capital expenditures in fiscal 2018 to be within the range of $18.0 million to $22.0 million.

In the first three months of fiscal 2018, cash flows used in financing activities were $6.6 million. We used $5.1 million to pay dividends and dividend equivalents on our common stock, and $3.3 million to repay long-term debt. We also used $3.1 million to repurchase common stock pursuant to the terms of our ~~2012 Omnibus Incentive Plan~~ (OIP) for shares withheld from award recipients to cover payroll taxes on the vesting of restricted stock and restricted stock units granted under the OIP, and used $1.6 million to repurchase common stock under our share repurchase program. We received $6.5 million from the issuance of common stock related to the exercise of stock options granted under our ~~Cabot Microelectronics Corporation 2000 Equity Incentive Plan (~~EIP) and OIP, and for the sale of shares to employees under our ESPP. The tax benefit of $2.8 million in our first quarter of fiscal 2018 related to exercises of stock options under the EIP and OIP, and vesting of restricted stock and restricted stock units awarded under the OIP is now presented in the operating activities section of the Consolidated Statements of Cash Flows pursuant to the adoption of~~ASU 2016-09.~~ In the first three months of fiscal 2017, cash flows provided by financing activities were $7.6 million. We received $12.5 million from the issuance of common stock related to the exercise of stock options granted under the EIP and OIP, and we received $2.5 million in tax benefits related to exercises of stock options under the EIP and OIP, and vesting of restricted stock and restricted stock units awarded under the OIP. We paid $4.4 million in dividends and dividend equivalents on our common stock. We also used $1.1 million to repurchase common stock under our share repurchase program and $1.9 million to repurchase common stock pursuant to the terms of our OIP for shares withheld from award recipients to cover payroll taxes on the vesting of restricted stock and restricted stock units granted under the OIP, which we have continued to present ~~as a financing activity under ASU 2016-09.~~

In January 2016, our Board of Directors authorized an increase in the amount available under our share repurchase program from the previously remaining $75.0 million to $150.0 million. Under this program, we repurchased 17,250 shares for $1.6 million during the first three months of fiscal 2018 and we repurchased 18,724 shares for $1.1 million during the first three months of fiscal 2017. As of December 31, 2017, approximately $120.4 million remained outstanding under our share repurchase program. Share repurchases are made from time to time, depending on market conditions. The timing, manner, price and amounts of repurchases are determined at the Company's discretion, and the share repurchase program may be suspended, terminated or modified at any time for any reason. The repurchase program does not obligate the Company to acquire any specific number of shares. To date, we have funded share purchases under our share repurchase program from our available cash balance, and anticipate we will continue to do so. Periodically, we also continue the "10b5-1" stock purchase plan agreements with independent brokers to repurchase shares of our common stock in accordance with guidelines pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. A plan under Rule 10b5-1 allows a company to repurchase its shares at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases are subject to SEC regulations as well as certain conditions specified in the plan.

In January 2016, we announced that our Board of Directors authorized the initiation of a regular dividend program under which the Company intends to pay quarterly cash dividends on our common stock. Pursuant to this announcement, our Board of Directors declared quarterly cash dividends of $0.18 per share, during the second, third, and fourth quarters of fiscal 2016, and during the first quarter of fiscal 2017. Starting in the second quarter of fiscal 2017, our Board of Directors declared quarterly cash dividends of $0.20 per share in the second, third and fourth quarters of fiscal 2017, the latest of which we paid in January 2018. The declaration and payment of future dividends is subject to the discretion and determination of the Company's Board of Directors and management, based on a variety of factors, and the program may be suspended, terminated or modified at any time for any reason.

~~INDEX~~

We entered into a Credit Agreement in February 2012 and amended this Credit Agreement in June 2014. The amended Credit Agreement provided us with a $175.0 million Term Loan and a $100.0 million Revolving Credit Facility, with sub-limits for multicurrency borrowings, letters of credit, swing-line loans, as well as a $100.0 million uncommitted accordion feature that allows us to request the existing lenders or, if necessary, third-party financial institutions, to provide additional capacity in the Revolving Credit Facility. The Term Loan and Revolving Credit Facility are referred to as the "Credit Facilities", and have a maturity date of June 27, 2019. The Term Loan has periodic scheduled principal repayments; however, we may prepay the loan without penalty. The Term Loan has $141.1 million outstanding as of December 31, 2017, while the Revolving Credit Facility remains undrawn. The Credit Agreement contains covenants that restrict the ability of the Company and its subsidiaries to take certain actions, including, among other things and subject to certain significant exceptions and according to certain terms: creating liens, incurring indebtedness, making investments, engaging in mergers, selling property, paying dividends or amending organizational documents. The Credit Agreement requires us to comply with certain financial ratio maintenance covenants. These include a maximum consolidated leverage ratio of 2.75 to 1.00 and a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00 through the expiration of the Credit Agreement. As of December 31, 2017, our consolidated leverage ratio was 0.83 to 1.00 and our consolidated fixed charge coverage ratio was 3.28 to 1.00. The Credit Agreement also contains customary affirmative covenants and events of default. We believe we are in compliance with these covenants. See Note 8 of the Notes to the Consolidated Financial Statements of this Form 10-Q for additional information regarding the Credit Agreement.

As of December 31, 2017, we had $377.2 million of cash and cash equivalents, $225.4 million of which was held in foreign subsidiaries in Japan, the Netherlands, Singapore, South Korea and Taiwan. In addition, we currently have a balance of $48.3 million in securities which are designated as available-for-sale securities. See Part II, Item 1A entitled "Risk Factors" in this Form 10-Q for additional discussion of our foreign operations.

We believe that our current balance of cash, available-for-sale securities, cash generated by our operations, and available borrowing capacity under our Credit Facilities will be sufficient to fund our operations, expected capital expenditures, merger and acquisition activities, dividend payments, and share repurchases for at least the next twelve months. In addition, we expect the Tax Act will provide greater flexibility in repatriating cash to the U.S. However, in pursuit of corporate development initiatives, we may need to raise additional funds in the future through equity or debt financing, or other arrangements. Depending on future conditions in the capital and credit markets, we could encounter difficulty securing additional financing in the type or amount necessary to pursue these objectives.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

At December 31, 2017 and September 30, 2017, we did not have any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements.

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~~TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS~~

~~The following summarizes our contractual obligations at December 31, 2017, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.~~

CONTRACTUAL OBLIGATIONS Less Than 1-3 3-5 After 5
(In millions) Total 1 Year Years Years Years
Long-term debt $ 141.1 $ 16.4 $ 124.7 $ - $ -
Interest expense and fees on long-term debt 5.3 3.8 1.5 - -
Purchase obligations 43.1 35.7 5.4 2.0 -
Operating leases 21.9 3.6 5.3 3.8 9.2
Severance agreements 3.0 2.4 0.6 - -
Other long-term liabilities *
35.0 - 4.3 4.0 26.7
Total contractual obligations $ 249.4 $ 61.9 $ 141.8 $ 9.8 $ 35.9

* We have excluded $0.1 million in deferred tax liabilities from the other long-term liability amounts presented, as the deferred taxes that will be settled in cash are not known and the timing of any such payments is uncertain. We have also excluded $0.4 million in deferred rent as the rent payments are included in the table above under the caption "Operating leases". ~~We also have included $22.5 million for deemed dividend taxes as required by the Tax Act.~~

We have been operating under a multi-year supply agreement with Cabot Corporation, which is not a related party and has not been one since 2002, for the purchase of fumed silica, the current term of which runs through December 31, 2019. This agreement provides us the option to purchase fumed silica with no minimum purchase requirements as of 2017, for which we have paid a fee of $1.5 million in each of calendar years 2017 and 2018, and for which we will pay in 2019. The purchase obligation in the table above reflect management's expectation that we will meet our forecasted quantities in calendar 2018 and beyond. Purchase obligations include an aggregate amount of $9.7 million of contractual commitments related to our Cabot Corporation supply agreement for fumed silica. The $1.5 million payment for calendar 2019 is included in accrued liabilities on our Consolidated Balance Sheets as of December 31, 2017.

Interest payments on long-term debt reflect interest rates in effect at December 31, 2017. The interest payments reflect variable LIBOR-based rates currently in effect on $70.5 million of our outstanding debt, and fixed interest rates on $70.5 million of outstanding debt for which we have implemented interest rate swaps. Commitment fees are based on our estimated consolidated leverage ratio in future periods. See Note 8 of the Notes to the Consolidated Financial Statements of this Form 10-Q for additional information regarding our long-term debt.

~~Refer to Item 7 "Management's Discussion~~ ~~and Analysis of Financial Condition and Results of Operations" of~~ ~~Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, for additional information regarding our contractual obligations.~~

~~INDEX~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~EFFECT OF FOREIGN CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT~~

~~We conduct business operations outside of~~There were no material changes from the ~~United States through our foreign operations. Some~~“Quantitative and Qualitative Disclosures about Market Risk” disclosed in Part II Item 7A of our foreign operations maintain their accounting records in their local currencies. Consequently, period to period comparability of results of operations is affected by fluctuations in exchange rates. The primary currencies to which we have exposure are the Korean won, Japanese yen, and the New Taiwan dollar. Approximately 23% of our revenue is transacted in currencies other than the U.S. dollar. However, we also incur expenses in foreign countries that are transacted in currencies other than the U.S. dollar, which mitigates the exposureAnnual Report on the Consolidated Statements of Income (Loss). We periodically enter into forward contracts in an effort to manage foreign currency exchange exposure on our Consolidated Balance Sheets. However, we are unlikely to be able to hedge these exposures completely. We do not enter into forward contracts or other derivative instruments for speculative or trading purposes.

~~Fluctuations of the won, yen, and New Taiwan dollar have not had a material impact on our Consolidated Income Statement~~Form 10-K for the ~~three months~~fiscal year ended December 31, 2017 and 2016; however, fluctuations of the won and yen during such time have had a significant impact on other comprehensive income on our Consolidated Balance Sheets. During the three months ended December 2017, we recorded $7.1 million in foreign currency translation gains, net of tax, that are included in other comprehensive income. During fiscal 2017, we recorded $6.7 million in foreign currency translation losses, net of tax, that are included in other comprehensive income. These gains and losses primarily relate to changes in the U.S. dollar value of assets and liabilities denominated in local currencies when these asset and liability amounts are translated at month-end exchange rates.September 30, 2021.

In the fourth quarter of fiscal 2017, we entered into forward foreign exchange contracts in an effort to protect our net investment in a foreign operation against potential adverse changes resulting from foreign currency fluctuation. This transaction is designated as a net investment hedge and is accounted for under hedge accounting. In the three months ended December 31, 2017, we recorded $4.4 million in gross currency translation losses related to this hedge, which are included in other comprehensive income noted above.

~~MARKET RISK AND SENSITIVITY ANALYSIS RELATED TO FOREIGN EXCHANGE RATE RISK~~

We have performed a sensitivity analysis assuming a hypothetical 10% additional adverse movement in foreign exchange rates. As of December 31, 2017, the analysis demonstrated that such market movements would not have a material adverse effect on our consolidated financial position, results of operations or cash flows over a one-year period. Actual gains and losses in the future may differ materially from this analysis based on changes in the timing and amount of foreign currency rate movements and our actual exposures.

~~INTEREST RATE RISK~~

At December 31, 2017, we had $141.1 million in debt outstanding on our Term Loan. In fiscal 2015, we entered into interest rate swap agreements to hedge the variability in LIBOR-based interest rate payments on half of our outstanding debt. The notional amount of the swaps decreases each quarter by an amount in proportion to our scheduled quarterly principal repayment to maintain a fixed rate of interest on half of our outstanding debt. As of December 31, 2017, the fair value of this cash flow hedge was $0.4 million. At December 31, 2017, we had $70.5 million of outstanding debt at a variable rate of interest. Assuming a hypothetical 100 basis point increase in our current variable interest rate, our interest expense would increase by approximately $0.2 million per quarter.

~~MARKET RISK RELATED TO INVESTMENTS IN AUCTION RATE SECURITIES~~

At December 31, 2017, we owned two auction rate securities (ARS) with a total estimated fair value $5.0 million and par value of $5.3 million, which were classified as other long-term assets on our Consolidated Balance Sheets. Beginning in 2008, general uncertainties in the global credit markets significantly reduced liquidity in the ARS market, and this illiquidity continues. For more information on our ARS, see Note 6 of the Notes to the Consolidated Financial Statements of this Form 10-Q.

~~INDEX~~

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer ~~(CEO)~~(“CEO”) and Chief Financial Officer ~~(CFO)~~(“CFO”), has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as ~~amended)~~amended (“the Exchange Act”), as of ~~December~~March 31, ~~2017.~~2022. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective to ~~ensure~~provide that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the ~~SEC's~~SEC’s rules and forms, and to ~~ensure~~provide that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

While we believe the present design of our disclosure controls and procedures is effective enough to make known to our senior management in a timely fashion all material information concerning our business, we intend to continue to improve the design and effectiveness of our disclosure controls and procedures to the extent we believe necessary in the future to provide our senior management with timely access to such material information, and to correct deficiencies that we may discover in the future, as appropriate.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There ~~were~~has been no ~~changes~~change in our internal control over financial reporting that has occurred during ~~our most recent fiscal quarter~~the period covered by this Report on Form 10-Q that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

Because of inherent limitations, our disclosure controls or our internal control over financial reporting may not prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must ~~take into account~~reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include ~~possible faulty judgment~~the realities that judgments in decision-making can be faulty, and that breakdowns ~~due to~~can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future ~~conditions. Over~~conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We periodically become a party to legal proceedings, arbitrations, regulatory proceedings, inquiries and investigations (“contingencies”) arising in the ordinary course of our business operations. The ultimate resolution of these contingencies is subject to significant uncertainty, and should we fail to prevail in any of them or should several of them be resolved against us in the same reporting period, these matters could, individually or in the aggregate, be material to our Consolidated Financial Statements. One of these contingencies, related to Star Lake Canal, which we assumed in connection with the acquisition of KMG, is discussed in Note 13 of “Notes to the Consolidated Financial Statements” included in Item 1 of Part I of this Report on Form 10-Q. The ultimate outcome of these matters, however, cannot be determined at this time, nor can the amount of any potential loss be reasonably estimated, and as a result except where indicated no amounts have been recorded in our Consolidated Financial Statements.

~~While~~We also may face other governmental or third-party claims, or otherwise incur costs, relating to cleanup of, or for injuries resulting from, contamination at sites associated with Star Lake Canal or other past and present operations. We accrue for environmental liabilities when a determination can be made that they are probable and reasonably estimable. Other than as described herein, we are not involved in any legal proceedings that we believe ~~will~~could have a material impact on our consolidated financial position, results of operations or cash ~~flows, we periodically become a party~~flows. The information set forth in Item 1A. Risk Factors, and Note 13 of “Notes to ~~legal proceedings~~the Consolidated Financial Statements” included in ~~the ordinary course~~Item 1 of ~~business.~~Part I of this Report on Form 10-Q, is incorporated herein by reference.

ITEM 1A. RISK FACTORS

RISKS RELATING TO THE ENTEGRIS TRANSACTION

BECAUSE THE EXCHANGE RATIO IS FIXED AND WILL NOT BE ADJUSTED IN THE EVENT OF ANY CHANGE IN EITHER ENTEGRIS’ OR OUR STOCK PRICE, THE VALUE OF THE SHARES OF ENTEGRIS FOLLOWING THE CLOSING IS UNCERTAIN.

Upon completion of the Entegris Transaction, each share of CMC common stock outstanding immediately before the Entegris Transaction will be converted into and become exchangeable for $133 in cash and 0.4506 shares of Entegris common stock. This exchange ratio is fixed in the Merger Agreement and will not be adjusted for changes in the market price of either Entegris common stock or CMC common stock. The market prices of Entegris common stock and CMC common stock have fluctuated before and after the date of the announcement of the Merger Agreement and will continue to fluctuate.

Because part of the value of the merger consideration will depend on the market price of Entegris common stock at the time the Entegris Transaction is completed, CMC stockholders will not know or be able to determine the market value of the merger consideration they would receive upon completion of the Entegris Transaction.

Stock price changes may result from a variety of factors, including, among others, changes in CMC’s or Entegris’ respective businesses, operations and prospects, reductions or changes in U.S. and foreign government spending or budgetary policies, market assessments of the likelihood that the Entegris Transaction will be completed, interest rates, general market, industry, geopolitical and economic conditions and other factors generally affecting the respective prices of CMC’s or Entegris’ common stock, federal, state and local legislation, governmental regulation and legal developments in the industry segments in which CMC or Entegris operate, and the timing of the Entegris Transaction and receipt of required regulatory approvals.

Many of these factors are beyond CMC’s control, and CMC is not permitted to terminate the Merger Agreement solely due to a decline in the market price of Entegris common stock.

THE ENTEGRIS TRANSACTION MAY NOT BE COMPLETED WITHIN THE EXPECTED TIMEFRAME, OR AT ALL, AND FAILURE TO COMPLETE IT COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITIONS, AND THE MARKET PRICE OF OUR COMMON STOCK

There can be no assurance that the Entegris Transaction will be completed in the expected timeframe, or at all. The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Entegris Transaction, including (i) the receipt of all consents, approvals or authorizations of, declarations or filings under other applicable competition laws and foreign investment laws; (ii) the absence of certain legal impediments preventing the completion of the Merger; (iii) the authorization for listing of Entegris common stock to be issued in connection with the merger on the NASDAQ and (iv) the accuracy of the representations and warranties of the parties and the compliance by the parties with their respective covenants in the Merger Agreement.

There can be no assurance that all required consents and approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), and, if all required consents and approvals are obtained and all closing conditions

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are satisfied (or waived, if applicable), we can provide no assurance as to the terms, conditions and timing of such consents and approvals or that the Entegris Transaction will be completed in a timely manner or at all. Many of the conditions to completion of the Entegris Transaction are not within either our or Entegris’ control, and we cannot predict when or if these conditions will be satisfied (or waived, as applicable). Even if regulatory approval is obtained, it is possible conditions will be imposed that could result in a material delay in, or the abandonment of, the Entegris Transaction or otherwise have an adverse effect on us.

If the Entegris Transaction is not completed within the expected timeframe or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices reflect a market assumption that the Entegris Transaction will be completed. In addition, some costs related to the Entegris Transaction must be paid whether or not the Entegris Transaction is completed, and we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed transaction, as well as the diversion of management and resources towards the Entegris Transaction, for which we will have received little or no benefit if completion of the Entegris Transaction does not occur. We may also experience negative reactions from our investors, employees, customers, suppliers, vendors, strategic partners or others that deal with us.

THE ANNOUNCEMENT AND PENDENCY OF THE ENTEGRIS TRANSACTION COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, AND THE MARKET PRICE OF OUR COMMON STOCK

The announcement and pendency of the Entegris Transaction could cause disruptions in and create uncertainty surrounding our business, which could have an adverse effect on our business, results of operations, financial condition and the market price of our common stock. These risks to our business include the following, all of which could be exacerbated by a delay in the completion of the Entegris Transaction: (i) the effect of restrictions placed on us and our subsidiaries’ ability to operate our businesses under the Merger Agreement, including our ability to pursue alternatives to the proposed transaction as further described below; (ii) the risk of disruption resulting from the proposed transaction, including the diversion of our management’s attention from ongoing business operations; (iii) the effect of the announcement of the proposed transaction on our ability to retain and hire employees; (iv) the effect of the announcement of the proposed transaction on our business relationships, operating results and businesses generally; (v) the occurrence of any event giving rise to the right of a party to terminate the Merger Agreement; and (vi) the effect of any legal proceedings that may be instituted against us related to the Entegris Transaction as further described below.

THE MERGER AGREEMENT CONTAINS PROVISIONS THAT COULD DISCOURAGE OR DETER A POTENTIAL COMPETING ACQUIRER THAT MIGHT BE WILLING TO PAY MORE TO EFFECT A BUSINESS COMBINATION WITH US

Unless and until the Merger Agreement is terminated in accordance with its terms, subject to certain specified exceptions, we are not permitted to solicit, seek, initiate or knowingly facilitate or knowingly encourage any inquiries regarding, or the making of, or any submission or announcement of a proposal or offer that constitutes, or would reasonably be expected to lead to, any acquisition proposal or engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other person any non-public information in connection with or for the purpose of encouraging or facilitating, any acquisition proposal or any inquiry or proposal that could reasonably be expected to lead to an acquisition proposal.

These provisions could discourage a potential competing acquirer from considering or proposing an acquisition or merger, even if it were prepared to pay consideration with a higher value than that implied by the merger consideration.

CMC WILL INCUR SIGNIFICANT TRANSACTION-RELATED AND INTEGRATION COSTS IN CONNECTION WITH THE ENTEGRIS TRANSACTION

We dohave incurred and expect to incur a number of non-recurring costs associated with combining our operations with that of Entegris, as well as transaction fees and other costs related to the Entegris Transaction. These costs and expenses include fees paid to financial, legal and accounting advisors, facilities and systems consolidation costs, severance and other potential employment-related costs, including retention and severance payments that may be made to certain CMC employees, filing fees, printing expenses and other related charges. Some of these costs are payable by us regardless of whether the Entegris Transaction is completed.

The combined company will also incur integration costs in connection with the merger. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the merger and the integration of the two companies’ businesses. Although we expect that the elimination of duplicative costs, strategic benefits, additional income as well as the realization of other efficiencies related to the integration of the businesses may offset incremental transaction-related and integration costs over time, any net benefit may not be achieved in the near term or at all. Many of these costs will be borne by us even if the merger is not completed. While we have assumed that certain expenses would be incurred in connection with the Entegris Transaction and the other transactions contemplated by the Merger Agreement, there are many factors beyond our control that could affect the total amount or the timing of the integration and implementation expenses.

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LITIGATION RELATING TO THE ENTEGRIS TRANSACTION HAS BEEN FILED AGAINST US AND OUR BOARD OF DIRECTORS, AND ADDITIONAL LITIGATION MAY BE FILED AGAINST US AND OUR BOARD OF DIRECTORS IN THE FUTURE, WHICH COULD PREVENT OR DELAY THE COMPLETION OF THE ENTEGRIS TRANSACTION OR RESULT IN THE PAYMENT OF DAMAGES

Litigation relating to the Entegris Transaction has been filed against us and our board of directors, and though we believe ~~there~~we have ~~been~~mooted all claims that were filed it is possible that additional litigation by our stockholders may be filed against us and our board of directors in the future. The outcome of any ~~material changes in~~litigation is uncertain and any such lawsuits could prevent or delay the completion of the Entegris Transaction and may be costly and distracting to our risk factors since the filing of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. However, we may update our risk factors, including adding or deleting them, in our SEC filings from time to time for clarification purposes or to include additional information, at management's discretion, even when there have been no material changes.

management.

RISKS RELATING TO OUR BUSINESS, STRATEGY AND OPERATIONS

OUR BUSINESS AND RESULTS OF OPERATIONS MAY CONTINUE TO BE ADVERSELY AFFECTED BY THE ONGOING CORONAVIRUS (COVID-19) PANDEMIC AND RELATED ADVERSE IMPACT TO WORLDWIDE ECONOMIC AND INDUSTRY CONDITIONS

The global impact of the Pandemic, which has created significant volatility, uncertainty and economic disruption across the world and in the countries and locations in which we and our customers and suppliers operate, continues in varying degrees and locations, especially in places experiencing low vaccination rates and/or the spread of variants of the COVID-19 virus. Overall, our Electronic Materials segment has remained generally stable throughout the Pandemic, and strengthened through fiscal 2020 and 2021 and into our first and second quarters of fiscal 2022, with increased demand conditions from the prior year in each of our Electronic Materials businesses, despite the ongoing nature of the Pandemic. With respect to our Performance Materials segment, while the Pandemic has had a significant adverse impact on our Performance Materials’ PIM business, which first appeared during the second half of our fiscal 2020 and continued through our first quarter of fiscal 2022, as the demand for drag reducing agents (“DRAs”) declined significantly due to the ongoing dislocation in the energy sector caused by the Pandemic, demand for our PIM products strengthened significantly in our second quarter of fiscal 2022. Despite the improvement in demand conditions to date in fiscal 2022 year over year and sequentially, recovery has been lower than anticipated, and certain factors such as inflationary costs related to raw materials continue to adversely affect the PIM reporting unit. The extent to which the ongoing Pandemic may further impact our business, operations, results of operations and financial condition is uncertain and difficult to estimate, and depends on numerous evolving factors that we may not be able to accurately predict, which may include: an ongoing adverse global economic environment with respect to inflationary pressures and supply chain dislocations that could further reduce demand and/or pricing for our products and services; Disruptions to our supply chain in connection with the sourcing of or pricing for materials, equipment and logistics or other services and support necessary to our business as a longer term result of the Pandemic and efforts to contain the spread of the Pandemic; Adverse impacts on our business and those of our customers resulting from renewed actions taken by governments, businesses, or the general public in an effort to limit exposure to and spread of such infectious diseases, such as renewed travel restrictions, quarantines, and business shutdowns or slowdowns; Negative impacts to our operations, including reductions in production levels, research and development (“R&D”) activities, and qualification activities with our customers; and, deterioration of worldwide credit and financial markets that could limit our ability to obtain external financing to fund our operations and capital expenditures, result in losses on our holdings of cash and investments due to failures of financial institutions and other parties, and result in losses on our accounts receivables due to credit defaults or our customers’ inability to pay. These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition. A further sustained or prolonged outbreak or return of the Pandemic in the places in which we do business, such as that seen in the spread of variants of the COVID-19 virus through our first and second quarters of fiscal 2022, could exacerbate the adverse impact of such measures on our Company.

DEMAND FOR OUR PRODUCTS FLUCTUATES AND OUR BUSINESS MAY BE ADVERSELY AFFECTED BY WORLDWIDE ECONOMIC, INDUSTRY AND ~~INDUSTRY~~OTHER CONDITIONS

Our business is affected by economic and industry conditions, such as those still being adversely affected by the Pandemic, and the majority of our revenue derives from our Electronic Materials segment, which is primarily dependent upon semiconductor industry demand. ~~Historically,~~With respect to our Electronic Materials segment, historically, semiconductor industry demand has fluctuated due to economic and industry cycles and seasonal shifts in demand, which can affect our business, causing demand for our electronic materials products to fluctuate. For example, prior to the ~~strengthening of~~Pandemic, the relatively soft demand conditions in the semiconductor industry ~~we experienced during~~that had commenced in our second fiscal quarter of 2019 and continued into our first fiscal quarter of 2020 had begun to ameliorate in the beginning of the second ~~half of~~ fiscal ~~2016 through fiscal 2017 continued through the first~~ quarter of ~~fiscal 2018, following~~2020. While our Electronic Materials segment experienced relatively ~~soft demand~~stable conditions during the second half of fiscal ~~2015~~2020 and strengthened through fiscal 2021 and our first and second quarters of fiscal 2022, uncertainty remains as to our fiscal 2022 demand conditions for the semiconductor industry given the continued impact of the Pandemic, albeit ameliorating, and related macroeconomic and geopolitical challenges such as those occasioned by Russia’s invasion of Ukraine and the ~~first half~~resulting ongoing conflict, including inflationary pressures, supply chain and logistics challenges, as well as related including supply constraints at some of ~~fiscal 2016.~~our customers serving certain areas, such as the automotive and industrial sectors. Furthermore, competitive dynamics within the semiconductor industry may impact our

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business. Our limited visibility to future customer orders makes it difficult for us to predict industry ~~trends.~~trends, especially during unusual adverse circumstances, such as the Pandemic and related macroeconomic and geopolitical factors. If the global economy or the semiconductor industry does not continue to improve or weakens again, whether in general or as a result of the Pandemic or other specific factors, such as macroeconomic factors, or unpredictable events such as natural disasters, geopolitical conditions such as those related to Russia’s invasion of Ukraine and the ongoing conflict, and international trade tensions, civil unrest, or ~~geopolitical events,~~additional global health crises, we could experience material adverse impacts on our results of operations and financial condition.

Adverse global economic and industry conditions could have other negative effects on our Company. For instance, we could experience negative impacts on cash flows due to the inability of our customers to pay their obligations to us, or our production process could be harmed if our suppliers cannot fulfill their obligations to us. We also might have to reduce the carrying value of goodwill and other intangible assets, which could harm our financial position and results of operations.

Some additional factors that may affect demand for our electronic materials products include: demand trends for different types of electronic devices such as logic versus memory ICintegrated circuit (“IC”) devices, or digital versus analog IC devices; the various technology nodes at which those products are manufactured; customers' efficiencies in the use of CMP ~~consumables; customers'~~consumables and/or high-purity process chemicals (“electronic chemicals”); customers’ device architectures and specific manufacturing processes; the short order to delivery time for our products; quarter-to-quarter changes in customer order patterns; market share and competitive gains and losses; and pricing changes by us and our competitors.

As to our Performance Materials segment, although demand for our PIM products increased in the first and second quarters of fiscal 2022, our PIM business may be further impacted by changes in the oil and gas industries, such as the ongoing significant dislocation in these industries caused by the Pandemic and supply chain related challenges. Expectations about future prices and price volatility in the sector, which affect our customers’ activity levels, are important in determining future spending levels for customers of our PIM products and services. The ongoing volatility in worldwide oil and natural gas prices and markets are an example of historical volatility in this sector, and such volatility is likely to continue in the future. As is currently the case, prices for oil and natural gas are subject to wide fluctuations in response to relatively minor or major changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include, but are not limited to, decreases or increases in supplies from U.S. shale production or other oil production, geopolitical conditions, including armed conflict such as Russia’s invasion of Ukraine and international trade tensions, sovereign debt crises, the domestic and foreign supply of oil and natural gas, the level of consumer demand due to economic growth or contraction such as seen related to the Pandemic, and related factors in countries such as China, weather conditions, domestic and foreign governmental regulations and taxes, the price and availability of alternative fuels, the health of international economic and credit markets, the ability of the members of the Organization of the Petroleum Exporting Countries and other state-controlled oil companies to agree upon and maintain oil price and production controls, and general economic conditions, such as those currently seen arising from the Pandemic.

Further, adverse global economic, industry and other conditions could have other negative effects on our Company. For instance, we could experience negative impacts on cash flows due to the inability of our customers to pay their obligations to us, or our production processes and profitability could be harmed if our suppliers significantly raise their prices, or cannot fulfill their obligations, to us. As a result of these or other conditions, and as experienced in the second quarter of our fiscal year 2021 with the impairment charge we took in our PIM business unit, further described in Note 9 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, we also might have to further reduce the carrying value of goodwill and other intangible assets, which could harm our financial position and results of operations.

WE HAVE A ~~NARROW~~CONCENTRATED PRODUCT RANGE WITHIN EACH OF OUR SEGMENTS AND OUR PRODUCTS MAY BECOME OBSOLETE, OR TECHNOLOGICAL CHANGES MAY REDUCE OR LIMIT INCREASES IN THE CONSUMPTION OF ~~CMP SLURRIES AND PADS~~OUR PRODUCTS

~~Our~~Although our product offerings have expanded over the past several years, including as a result of the acquisitions of KMG and ITS, our business isremains substantially dependent on products in our Electronic Materials segment, such as CMP slurries, pads and ~~pads,~~electronic chemicals, and materials technologies, which account for the majority of our revenue. ~~Our~~The product offerings in our Performance Materials segment are similarly concentrated. As such, our business would suffer if these products became obsolete or if consumption of these products decreased. Our success depends on our ability to keep pace with technological changes and advances in the industries in which we operate, particularly the semiconductor industry, ~~and~~ to adapt, improve and customize our products ~~for advanced IC applications~~ in response to evolving customer needs and industry ~~trends.~~trends, and to differentiate our products from those of our competitors. Since its inception, the semiconductor industry, which is the largest industry in which we operate, has experienced technological changes and advances in the design, manufacture, performance and application of IC devices. Our customers continually pursue lower cost of ownership and higher quality and performance of materials consumed in their manufacturing processes, including ~~CMP slurries and pads,~~products in our Electronic Materials business segment, as a means to reduce costs, increase the yield in their manufacturing facilities, and achieve desired performance of the IC devices they produce. We expect these technological changes, and this drive toward lower costs, higher quality and performance and higher yields, will continue in the future. Potential technology developments in the semiconductor industry, as well as our customers' efforts to reduce consumption of CMP consumables, including through use of smaller quantities, could render our products less important to the IC device manufacturing process.

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A SIGNIFICANT AMOUNT OF OUR BUSINESS COMES FROM A LIMITED NUMBER OF LARGE CUSTOMERS AND OUR REVENUE AND PROFITS COULD DECREASE SIGNIFICANTLY IF WE LOST ONE OR MORE OF THESE CUSTOMERS OR BUSINESS FROM THEM

Our ~~CMP consumables~~ customer base is concentrated among a limited number of large ~~customers.~~customers in each of our segments. Currently, our principal business supplies electronic materials primarily to the semiconductor industry. The semiconductor industry has been consolidating as the larger semiconductor manufacturers have generally grown faster than the smaller ones, through business gains, mergers and acquisitions, and strategic alliances. Industry analysts predict that this trend will continue, which means the semiconductor industry will continue to be comprised of fewer and larger participants in the future if their prediction is correct. In addition, our customer base in our PIM business is also somewhat concentrated, with large entities predominant, and outside of the U.S., these entities frequently are state-owned or sponsored, and limited in number per country. One or more of these principal customers could stop buying ~~CMP consumables~~products from us or could substantially reduce the quantity of ~~CMP consumables~~products purchased from us. Our principal customers in both our segments also hold considerable purchasing power, which can impact the pricing and terms of sale of our products. Any deferral or significant reduction in the quantity or price of ~~CMP consumables~~products sold to these principal customers, an inability to raise prices to address cost pressures or otherwise, or a weakening of the financial condition of or failure to perform contractual obligations by one of these principal customers, could ~~seriously~~significantly harm our business, financial condition and results of operations.

During the three months ended December 31, 2017 and 2016, our five largest customers accounted for approximately 56% and 57% of our revenue, respectively. During the three months ended December 31, 2017, Samsung and Taiwan Semiconductor Manufacturing Company, were our largest customers accounting for approximately 18% and 13%, respectively, of our revenue. During the three months ended December 31, 2016, Samsung, Taiwan Semiconductor Manufacturing Company (TSMC), and Micron Technology, Inc. were our largest customers accounting for approximately 16%, 14%, and 11%, respectively, of our revenue.

~~OUR BUSINESS COULD BE SERIOUSLY HARMED IF OUR COMPETITORS DEVELOP COMPETITIVE CMP CONSUMABLES PRODUCTS, OFFER BETTER PRICING, SERVICE OR OTHER TERMS, OR OBTAIN CERTAIN INTELLECTUAL PROPERTY RIGHTS~~

Competition from other CMP consumables manufacturers or any new entrants could seriously harm our business and results of operations, and this competition could continue to increase. Competition has and will likely continue to impact the prices we are able to charge for our CMP consumables products, as well as our overall business. In addition, our competitors could have or obtain intellectual property rights that could restrict our ability to market our existing products and/or to innovate and develop new products, could attempt to introduce products similar to ours following the expiration of our patents, as referenced with respect to certain intellectual property important to some of our legacy business, or could attempt to introduce products that do not fall within the scope of our intellectual property rights.

ANY PROBLEM OR DISRUPTION IN OUR SUPPLY CHAIN, INCLUDING SUPPLY OF OUR MOST IMPORTANT RAW MATERIALS, OR IN OUR ABILITY TO MANUFACTURE ~~AND~~OR DELIVER OUR PRODUCTS TO OUR CUSTOMERS, COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

We depend on our supply chain to enable us to meet the demands of our customers. Our supply chain includes the raw materials we use to manufacture our products, our production operations and the means by which we deliver our products to our customers. Our business could be adversely affected by any problem or interruption in the supply of the key raw materials we use in our ~~CMP slurries and pads,~~products, including raw materials that do not meet the stringent quality and consistency requirements of our customers, any problem or interruption that may occur during production or delivery of our products, such as weather-related problems, natural disasters, orlogistics challenges, global public health crises such as the ongoing Pandemic, geopolitical issues such as those related to Russia’s invasion of Ukraine and the ongoing conflict, trade or labor-related issues, civil unrest, or any difficulty in producing sufficient quantities of our products to meet growing demand from our customers. ~~Our~~In particular, natural disasters and severe weather conditions have the potential to adversely affect our operations, damage facilities and increase our costs, and those conditions may also have an indirect effect on our operations by disrupting services provided by service companies or suppliers with whom we have a business relationship. Additionally, some of our full-time employees are represented by labor unions, works councils or comparable organizations, particularly in Europe. An extended work stoppage, slowdown or other action by our employees could significantly disrupt our business. As our current agreements with labor unions and works councils expire, we cannot provide assurance that new agreements will be reached at the end of each period without union action, or that a new agreement will be reached on terms satisfactory to us. Future labor contracts may be on terms that result in higher labor costs to us, which also could adversely affect our results of operations. As experienced in the second half of our fiscal 2021 and ongoing through the first half of our fiscal 2022, our supply chain may also be negatively impacted by unanticipated price increases due to factors such as inflation or to supply restrictions beyond the control of our Company or our raw materials ~~suppliers.~~

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suppliers, such as those related to or arising from the Pandemic.

We believe it would be difficult to promptly secure alternative sources of key raw materials in the event one of our suppliers becomes unable to supply us with sufficient quantities of raw materials that meet the quality and technical specifications required by us and our ~~customers.~~customers, or the costs of such raw materials increase in an untenable manner. Requalifying and/or transferring our sourcing to a new supplier would likely result in manufacturing delays and additional costs. In addition, new contract terms, forced production or manufacturing changes, contractual amendments to existing agreements with, or non-performance by, our suppliers, including any significant financial distress our suppliers may suffer, could adversely affect us. Also, if we change the supplier or type of key raw materials we use to make our ~~CMP slurries or pads,~~products, in particular our electronic materials products, or are required to purchase them from a different manufacturer or manufacturing facility or otherwise modify our products, in certain circumstances our customers might have to requalify our ~~CMP slurries and pads~~products for their manufacturing processes and products. The requalification process could take a significant amount of time and expense to complete and could occupy technical resources of our customers that might otherwise be used to evaluate our new products, thus delaying potential revenue growth, or motivate our customers to consider purchasing products from our competitors, possibly interrupting or reducing our sales of ~~CMP consumables~~products to these customers, especially sales of our electronic materials products to our semiconductor industry customers, but also with respect to our PIM products to our pipeline and adjacent industry customers. In addition, government authorities in the foreign countries in which we operate may require or incentivize the use of local suppliers that are our competitors, which could adversely impact our business, including our results of operations.

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OUR BUSINESS COULD BE ADVERSELY IMPACTED IF WE ARE NOT SUCCESSFUL IN ACHIEVING TARGETED SAVINGS AND EFFICIENCIES FROM COST REDUCTION INITIATIVES

To mitigate cost challenges and improve our business and financial performance, we have initiated an enterprise-wide cost optimization program, called “Future Forward,” designed to reduce expenses and enhance operational efficiencies. The Future Forward Program has and may include position eliminations, location rationalization, and reductions in outside services and discretionary spending, as well as other actions to reduce costs. We may not realize anticipated cost savings or other benefits from such initiatives, whether at all or according to timetables we have established. If we are unable to realize the anticipated benefits, our ability to fund other initiatives may be adversely affected, and failure to implement these initiatives in accordance with our plans could adversely affect our business.

OUR BUSINESS COULD BE SERIOUSLY HARMED IF OUR COMPETITORS DEVELOP COMPETITIVE PRODUCTS, OFFER BETTER PRICING, SERVICE OR OTHER TERMS, OR OBTAIN OR ASSERT CERTAIN INTELLECTUAL PROPERTY RIGHTS

Competition from other electronic materials or performance materials providers or any new entrants could seriously harm our business and results of operations, and this competition could continue to increase. Competition has and will likely continue to impact the prices we are able to charge for our products, as well as our overall business. In addition, our competitors could have, obtain or assert intellectual property rights that could affect or restrict our ability to market our existing products and/or to innovate and develop new products, thus increasing our costs of doing business, could attempt to introduce products similar to ours following the expiration of our patents, or could attempt to introduce products that do not fall within the scope of our intellectual property rights.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR ~~FOREIGN~~INTERNATIONAL OPERATIONS

We currently have operations and a large customer base outside of the ~~United States.~~U.S. Approximately ~~87%~~68% of our revenue was generated by sales to customers outside of the ~~United States~~U.S. for ~~both~~ the ~~three months ended December 31, 2017 and full~~ fiscal year ended September 30, ~~2017.~~2021. We may encounter risks in doing business in certain ~~foreign~~ countries other than the U.S., including, but not limited to, adverse changes in economic and political conditions, both in foreign locations and in the ~~United States~~U.S. with respect to non-U.S. operations of U.S. businesses like ours, geopolitical issues such as those related to Russia’s invasion of Ukraine and the ongoing conflict, trade tensions, global health crises such as the ongoing Pandemic, civil unrest, fluctuation in exchange rates, changes in international trade requirements and sanctions and/or tariffs that affect our business and that of our customers and suppliers, compliance with a variety of foreign laws and regulations and related audits and investigations, as well as difficulty in enforcing business and customer contracts and agreements, including protection of intellectual property rights. We also may encounter risks that we may not be able to repatriate additional earnings from our ~~foreign~~ operations outside the U.S., derive anticipated tax benefits of ~~our foreign~~these operations or recover the investments made in ~~our foreign operations,~~them, whether due to regulatory or policy changes in the U.S. or in the countries outside of the U.S. in which we do business, or other factors.

In particular, China ~~is a fast-developing~~continues to be an important market for the semiconductor industry, and is an area of continued potential ~~continued~~ growth for us. As business ~~volume~~ between China and the rest of the world ~~continues~~has continued to grow, there is risk that geopolitical, ~~regulatory~~political, diplomatic and ~~political matters~~national security factors, changes in U.S. and foreign laws and regulations, the imposition of trade restrictions, tariffs and taxes, and global public health crises such as the Pandemic could adversely affect ~~trade~~business for companies like ~~ours based on~~ours. This is due in significant part to the complex relationships among China, the ~~United States,~~U.S., and other countries, especially those in the Asia Pacific region, such as Taiwan, which also is important to our Company with respect to our customers as well as our operations, which could have a material adverse impact on our business. In addition, there are risks that the Chinese government may, among other things, require the use of local suppliers, compel companies that do business in China to partner with local companies to conduct business, ~~and,~~or, provide incentives to government-backed local customers to buy from local suppliers rather than companies like ours, all of which could adversely impact our business, including our results of operations. Also, as seen in the past several years, there are risks that the U.S. government may impose additional export restrictions on technology and products that companies that operate in the semiconductor industry supply to or use in China, which could adversely impact our business and our results of operations.

In addition, we have operations and customers located in the United Kingdom, which exited the European Union (“EU”). As the transitional provisions under which the United Kingdom and the EU had agreed to operate expired at the end of December 2020, and the parties are still in the process of implementing new trade agreements, the related impacts on our business remain unclear.

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LEGAL, COMPLIANCE AND REGULATORY RISKS

WE ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL LAWS AND REGULATIONS AND MAY INCUR COSTS THAT HAVE AN ADVERSE EFFECT ON OUR FINANCIAL CONDITION AS A RESULT OF VIOLATIONS OF OR LIABILITIES UNDER THEM

Like other companies involved in environmentally sensitive businesses, our operations and properties are subject to extensive and stringent federal, state, local and foreign Environmental, Health and Safety (“EHS”) laws and regulations, including those concerning, among other things:

•the marketing, sale, use and registration of our chemical products, such as pentachlorophenol (“penta”), which is part of the wood treatment business in our Performance Materials segment;

•the treatment, storage and disposal of wastes;

•the investigation and remediation of contaminated media including but not limited to soil and groundwater;

•the discharge of effluents into waterways;

•the emission of substances into the air; and

•other matters relating to environmental protection and various health and safety matters.

The United States EPA and other federal and state agencies in the U.S., as well as comparable agencies in other countries where we have facilities or sell our products, have the authority to promulgate regulations that could have a material adverse impact on our operations. These EHS laws and regulations may require permits for certain types of operations, require the installation of expensive pollution control equipment, place restrictions upon operations or impose substantial liability for pollution and otherEHS concerns resulting from our operations. Compliance with EHS laws and regulations has resulted in ongoing costs for us and could restrict our ability to modify or expand our facilities, continue production, require us to install costly emission control equipment, or incur significant other expenses, including environmental compliance costs. We continue to manage environmental compliance activities at certain sites, such as at KMG-Bernuth’s Tuscaloosa, Alabama facility as described in Note 19 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 and in Note 13 of Part 1 of this Report on Form 10-Q. We have incurred, and expect to continue to incur, significant costs to comply with EHS laws or to address liabilities for contamination resulting from past or present operations. Federal, state and foreign governmental authorities may seek fines and penalties, as well as injunctive relief, for violation of EHS laws and regulations, and could, among other things, impose liability on us to cleanup or to respond to potential damages to the environment or natural resources resulting from a release of pesticides, hazardous materials or other chemicals into the environment. We maintain insurance coverage for sudden and accidental environmental pollution or damages. We do not believe that insurance coverage for environmental pollution or damage that occurs over time is available at a reasonable cost. Also, we do not believe that insurance coverage for the full potential liability that could be caused by sudden and accidental pollution incidents is available at a reasonable cost. Accordingly, we may be subject to an uninsured or under-insured loss in such cases; the KMG-Bernuth warehouse fire, as described in Note 13 of Part 1 of this Report on Form 10-Q, may be such an instance.

The distribution, sale and use of our products is subject to prior governmental approvals and thereafter ongoing governmental regulation: Our products are subject to laws administered by federal, state and foreign governments, including regulations requiring registration, approval and labeling. The labeling requirements restrict the use and type of application for our products. More stringent restrictions could make our products less desirable which would adversely affect our sales and profitability. All venues where our penta products are used also require registration prior to marketing or use.

Governmental regulatory authorities have required, and may require in the future, that certain scientific testing and data production be provided on our products. Under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”), the EPA requires registrants to submit a wide range of scientific data to support U.S. registrations. This requirement significantly increases our Operating expenses, and we expect those expenses will continue in the future while we operate the wood treatment business. Because scientific analyses are constantly improving, we cannot determine with certainty whether or not new or additional tests may be required by regulatory authorities. While good laboratory practice standards specify the minimum protocols and procedures that must be followed in order to ensure the quality and integrity of data related to these tests submitted to the EPA, there can be no assurance that the EPA will not request certain tests or studies be repeated. In addition, more stringent legislation or requirements may be imposed in the future and proposed amendments to the Toxic Substances Control Act could result in increased regulatory controls , additional testing of chemicals we manufacture and could increase the costs of compliance for our operations. We can provide no assurance that the cost of such compliance will not adversely affect our profitability. Our products could also be subject to other future regulatory action that may result in restricting or completely banning their use which could have an adverse effect on our performance and results of operations.

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1. The Registration, Evaluation and Authorization of Chemicals (“REACH”) legislation may affect our ability to manufacture and sell certain products in the EU: REACH requires chemical manufacturers and importers in the EU to prove the safety of their products. We were required to pre-register certain products and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Additionally, substances of high concern are subject to an authorization process. Authorization may result in restrictions on certain uses of products or even prohibitions on the manufacture or importation of products. The full registration requirements of REACH have been phased in over several years, and we have incurred additional expense to cause the registration of our products under these regulations. REACH may also affect our ability to import, manufacture and sell certain products in the EU. In addition, other countries and regions of the world already have or may adopt legislation similar to REACH that affect our business, affect our ability to import, manufacture or sell certain products in these jurisdictions, and have required or will require us to incur increased costs.

2. The classification of penta as a Persistent Organic Pollutant (“POP”) under the Stockholm Convention adversely affected our ability to manufacture or sell our penta products and completed our exit of this business in the second quarter of fiscal 2022. We took a restructuring charge in our fourth fiscal quarter of 2019, and asset impairment charges in each the fourth quarter of fiscal 2019, the fourth quarter of fiscal 2020, each of our quarters of fiscal 2021, and the first quarter of fiscal 2022, related to the decisions to close our wood treatment facilities and to exit the wood treatment business, as described further in Note 8 of Part 1 of this Report on Form 10-Q and in Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. No assurance can be given that we will not incur significant expenditures in connection with completing closure of the wood treatment facilities.

3. Our use of hazardous materials exposes us to potential liabilities: Our manufacturing and distribution of chemical products, such as our electronic chemicals, involves the controlled use of hazardous materials. Our operations, therefore, are subject to various associated risks, including chemical spills, discharges or releases of toxic or hazardous substances or gases, fires, mechanical failure, storage facility leaks and similar events. Our suppliers are subject to similar risks that may adversely impact the availability of raw materials. While we adapt our manufacturing and distribution processes to the environmental control standards of regulatory authorities, we cannot completely eliminate the risk of accidental contamination or injury from hazardous or regulated materials, including injury of our employees, individuals who handle our products or goods treated with our products, or others who claim to have been exposed to our products, nor can we completely eliminate the unanticipated interruption or suspension of operations at our facilities due to such events. We may be held liable for significant damages or fines in the event of contamination or injury, and such assessed damages or fines could have an adverse effect on our financial performance and results of operations.

CURRENT OR FUTURE CLIMATE CHANGE REGULATIONS COULD RESULT IN INCREASED OPERATING COSTS AND REDUCED DEMAND FOR OUR PRODUCTS

The U.S. has rejoined the Paris Climate Accord but to date, has not ratified the Kyoto Protocol. The Clean Air Act has been interpreted to regulate greenhouse gas (“GHG”) emissions and the EPA is using its existing regulatory authority to develop regulations requiring reduction in GHG emissions from various categories of sources, such as when a permit is required due to emissions of other pollutants. Because of the lack of any comprehensive legislation program addressing GHGs, a number of U.S. federal laws related to GHG emissions have been considered by the U.S. Congress from time to time and various state, local and regional regulations and initiatives have been enacted or are being considered related to GHGs.

Member States of the EU each have an overall cap on emissions, which are approved by the European Commission, and implement the EU Emissions Trading Directive as a commitment to the Kyoto Protocol. GHG emissions are regulated by Member States through the EU Emission Trading System and the EU Effort Sharing Decision/Regulation depending upon the industry sector. Organizations apply to the Member State for an allowance of GHG emissions. These allowances are tradable so as to enable companies that manage to reduce their GHG emissions to sell their excess allowances to companies that are not reaching their emissions objectives. Failure to purchase sufficient allowances will require the purchase of allowances at a current market price.

Any laws or regulations that may be adopted to restrict or reduce emissions of GHGs could cause an increase to our raw material costs, require us to incur increased operating costs, and have an adverse effect on demand for our products and our financial performance and results for our business.

In addition to GHG and climate change regulatory developments and legislation, we are continuing to evaluate and assess the potential impact on our business of the ongoing transition worldwide to a low carbon, resilient economy as well as physical effects resulting from climate change.

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OUR PRODUCTS MAY BE RENDERED OBSOLETE OR LESS ATTRACTIVE BY CHANGES IN INDUSTRY REQUIREMENTS OR BY SUPPLY-CHAIN DRIVEN PRESSURES TO SHIFT TO ENVIRONMENTALLY PREFERABLE ALTERNATIVES

Changes in regulatory, legislative and industry requirements, or changes driven by supply-chain pressures, may shift current customers away from products using penta, products containing hazardous materials, or certain of our other products and toward alternative products that are believed to have fewer environmental effects. The EPA, foreign and state regulators, local governments, private environmental advocacy organizations, investors and investor advisory firms, and a number of large industrial companies have proposed or adopted policies designed to decrease the use of a variety of chemicals, including penta and others included in certain of our products, such as those containing hazardous materials, or to counteract the growth of certain industries such as those in which customers served by our PIM products operate. Our ability to anticipate changes in regulatory, legislative, investor, and industryrequirements, or changes driven by supply-chain pressures, may affect our ability to remain competitive. Further, we may not be able to comply with changed or new regulatory or industrial standards that may be necessary for us to remain competitive.

We cannot provide assurance that the EPA, foreign and state regulators or local governments will not restrict the uses of certain of our products, like penta, or ban the use of one or more of these products or the raw materials in them. Similarly, companies who use our products may voluntarily decide to reduce significantly or cease the use of our products. As a result, our products may become obsolete or less attractive to our customers.

GENERAL COMMERCIAL, OPERATIONAL, FINANCIAL AND REGULATORY RISKS

BECAUSE WE RELY ~~HEAVILY~~ ON OUR INTELLECTUAL PROPERTY, OUR FAILURE TO ADEQUATELY OBTAIN OR PROTECT IT COULD ~~SERIOUSLY~~SIGNIFICANTLY HARM OUR BUSINESS

Protection of intellectual property is particularly important in ~~our~~the semiconductor industry, which is the primary industry in which we participate, because we develop complex technical formulas and processes for ~~CMP~~ products that are proprietary in nature and differentiate our products from those of our competitors. Our intellectual property is important to our success and ability to compete. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as employee and third-party nondisclosure and assignment agreements. In addition, we protect our product differentiation through various other means, such as proprietary supply arrangements for certain raw materials, and use of certain manufacturing technologies. Due to our international operations, we pursue protection in different jurisdictions, which may provide varying degrees of protection, and we cannot provide assurance that we can obtain adequate protection in each such jurisdiction. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason, including through the patent prosecution process or in the event of litigation related to such intellectual property, which we pursue when necessary to protect our rights against others who are found to be misusing our intellectual property, could seriously harm our business. In addition, certain types of intellectual property, such as patents, expire after a certain period of time, and products protected by our patents then lose such protection, so we refresh our intellectual property portfolio on an ongoing basis through continued innovation, and failure to do so could adversely affect our business. Also, the costs of obtaining or protecting our intellectual property could negatively affect our operating results.

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WE MAY PURSUE ACQUISITIONS OF, INVESTMENTS IN, AND MERGERS OR STRATEGIC ALLIANCES WITH OTHER ENTITIES, WHICH COULD DISRUPT OUR OPERATIONS AND HARM OUR OPERATING RESULTS IF THEY ARE UNSUCCESSFUL OR WE MAY ENCOUNTER UNATICIPATED ISSUES IN IMPLEMENTING THEM

We expect to continue to make investments in technologies, assets and companies, either through acquisitions, mergers, investments or alliances, in order to supplement our internal growth and development efforts. Acquisitions, mergers, and investments, including our acquisition of NexPlanar, which we completed in October 2015, involve numerous risks, including the following: difficulties and risks in integrating the operations, technologies, products and personnel of acquired companies; difficulties and risks from unanticipated issues arising subsequent to a transaction related to the other entity; diversion of management's attention from normal daily operations of the business; increased risk associated with foreign operations; potential difficulties and risks in entering markets in which we have limited or no direct prior experience and where competitors have stronger positions; potential difficulties in operating new businesses with different business models; potential difficulties with regulatory or contract compliance in areas in which we have limited experience; initial dependence on unfamiliar supply chains or relatively small supply partners; insufficient revenues to offset increased expenses associated with acquisitions; potential loss of key employees of the acquired companies; or inability to effectively cooperate and collaborate with our alliance partners.

Further, we may never realize the perceived or anticipated benefits of a business combination or merger with, or asset or other acquisition of, or investments in, other entities. Transactions such as these could have negative effects on our results of operations, in areas such as contingent liabilities, gross profit margins, amortization charges related to intangible assets and other effects of accounting for the purchases of other business entities. Investments in and acquisitions of technology-related companies or assets are inherently risky because these businesses or assets may never develop, and we may incur losses related to these investments. For example, in fiscal 2016, we recorded $1.0 million of impairment expense related to certain in-process technology, related to the NexPlanar acquisition. In addition, we may be required to impair the carrying value of these acquisitions or investments to reflect other than temporary declines in their value, which could harm our business and results of operations.

~~BECAUSE WE HAVE LIMITED EXPERIENCE IN BUSINESS AREAS OUTSIDE OF CMP CONSUMABLES, EXPANSION OF OUR BUSINESS INTO OTHER PRODUCTS AND APPLICATIONS MAY NOT BE SUCCESSFUL~~

An element of our strategy has been to leverage our current customer relationships, technological expertise and other capabilities and competencies to expand our business beyond CMP consumables into other areas, such as other electronic materials. Additionally, in our Engineered Surface Finishes business, we are pursuing other surface modification applications. Expanding our business into new product areas could involve technologies, production processes and business models in which we have limited experience, and we may not be able to develop and produce products or provide services that satisfy customers' needs, or we may be unable to keep pace with technological or other developments. Also, our competitors may have or obtain intellectual property rights that could restrict our ability to market our existing products and/or to innovate and develop new products.

~~CERTAIN CRITICAL INFORMATION SYSTEMS COULD BE SUSCEPTIBLE TO CYBERSECURITY AND OTHER THREATS~~

We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include, but are not limited to, telecommunications, the Internet, our corporate intranet, various computer hardware and software applications, network communications, and email. These information systems may be owned and maintained by us, our outsourced providers, or third parties such as vendors, contractors, and Cloud providers. All of these information systems are subject to disruption, breach or failure from various sources including, but not limited to, attacks, degradation, and failures resulting from potential sources, including viruses, malware, denial of service, destructive or inadequate code, power failures, and physical damage. Confidential and/or sensitive information stored on these information systems, or transmitted to or from Cloud storage, could be intentionally or unintentionally compromised, lost, and/or stolen. While we have implemented security procedures and virus protection software, intrusion prevention systems, access control, and emergency recovery processes to mitigate risks like these with respect to information systems that are under our control, they are not fail-safe and may be subject to breaches. Further, we cannot assure that third parties upon whom we rely for various IT services will maintain sufficient vigilance and controls over their systems. Our inability to use or access these information systems at critical points in time, or unauthorized releases of proprietary or confidential information, could unfavorably impact the timely and efficient operation of our business, including our results of operations, and our reputation.

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OUR INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD CAUSE OUR BUSINESS TO SUFFER

We utilize and rely upon a global workforce. If we fail to attract and retain the necessary managerial, technical and customer support personnel, our business and our ability to maintain existing and obtain new customers, develop new products and provide acceptable levels of customer service could suffer. We compete worldwide with other ~~industry~~ participants in the industries in which we conduct business for qualified personnel, particularly those with significant experience in the semiconductor ~~industry.~~and pipeline industries. The loss of services of key employees, or our inability to obtain or maintain visas or other travel or residency documents on their behalf with respect to our business needs, could harm our business and results of operations. ~~Periodically,~~

CERTAIN CRITICAL INFORMATION SYSTEMS COULD BE SUSCEPTIBLE TO CYBERSECURITY AND OTHER THREATS OR VULNERABILITIES

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prevention systems, access control, and emergency recovery processes to mitigate risks like these with respect to information systems that are under our control, they are not fail-safe and may be subject to breaches or failures. Further, we cannot assure that third parties upon whom we rely for various IT services will maintain sufficient vigilance and controls over their systems. Our inability to use or access these information systems at critical points in ~~succession planning for~~time, or unauthorized releases of personal or confidential information, could unfavorably impact the timely and efficient operation of our ~~key employees,~~business, including our results of operations, and our ~~Board~~reputation, as well as our relationships with our employees or other individuals whose information may have been affected by such cybersecurity incidents.

In addition, regulatory authorities have increased their focus on how companies collect, process, use, store, share and transmit personal data. Privacy security laws and regulations, including the United Kingdom’s Data Protection Act 2018 and the EU General Data Protection Regulation 2016, and similar laws in countries such as Korea and Taiwan, among others, pose increasingly complex compliance challenges, which may increase compliance costs, and any failure to comply with data privacy laws and regulations could result in significant penalties that could adversely affect our business and results of ~~Directors reviews succession planning for~~operations.

OUR EXISTING CREDIT AGREEMENT COULD RESTRICT, AND THE MERGER AGREEMENT RESTRICTS, OUR BUSINESS ACTIVITIES

Our Amended Credit Agreement contains financial and other covenants that may restrict our ~~executive officers, including~~business activities or our ~~chief executive officer,~~ability to execute our strategic objectives, and our failure to comply with these covenants could result in a default under it. The Merger Agreement places additional restrictions on ~~an annual basis.~~our business activities and on our ability to raise capital and/or incur debt.

~~RISKS RELATING TO~~ THE MARKET PRICE FOR OUR COMMON STOCK

~~THE MARKET PRICE~~ MAY FLUCTUATE SIGNIFICANTLY AND RAPIDLY

The market price of our common stock has fluctuated and could continue to fluctuate significantly as a result of factors such as: the Entegris Transaction, economic, geopolitical (i.e., Russia’s invasion of Ukraine), global public health (i.e., the Pandemic), political and stock market conditions generally and specifically as they may impact participants in the semiconductor and related industries; and/or participants in oil and gas related industries; changes in financial estimates and recommendations by securities analysts who follow our stock; earnings and other announcements, and changes in market evaluations, by securities analysts, investors, market participants or others, of or related to, us or participants in the semiconductor and related industries; changes in business, trade or regulatory conditions affecting us or participants in the semiconductor and related industries; announcements or implementation by us, our competitors, or our customers of technological innovations, new products or different business strategies; changes in our capital deployment strategy, issuances of shares of our capital stock or entering into a business ~~combination;~~combination or other strategic transaction; and trading volume of our common stock.

~~ANTI-TAKEOVER PROVISIONS UNDER OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DISCOURAGE THIRD PARTIES FROM MAKING AN UNSOLICITED BID FOR OUR COMPANY~~

Our certificate of incorporation and bylaws, and various provisions of the Delaware General Corporation Law may make it more difficult or expensive to effect a change in control of our Company. For instance, our amended and restated certificate of incorporation provides for the division of our Board of Directors into three classes as nearly equal in size as possible with staggered three-year terms.

We have adopted change in control arrangements covering our executive officers and other key employees. These arrangements provide for a cash severance payment, continued medical benefits and other ancillary payments and benefits upon termination of service of a covered employee's employment following a change in control, which may make it more expensive to acquire our Company.

~~INDEX~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
Oct. 1 through Oct. 31, 2017 5,975 $ 84.98 5,975 $ 121,485
Nov. 1 through Nov. 30, 2017 6,106 $ 98.18 5,775 $ 120,918
Dec. 1 through Dec. 31, 2017 39,313 $ 92.66 5,500 $ 120,401
Total 51,394 $ 92.42 17,250 $ 120,401

~~In January 2016, our Board of Directors authorized an increase in the amount available~~We did not repurchase any shares under our share repurchase program ~~to $150.0 million. Under this program, we repurchased 17,250 shares for $1.6 million~~ during the ~~first~~second quarter of fiscal ~~2018. As of December 31, 2017, $120.4 million remained outstanding under our share repurchase program. The manner in which the Company repurchases its shares is discussed in~~2022. Refer to Part I, Item 2, ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading ~~"Liquidity~~“Liquidity and Capital ~~Resources",~~Resources,” of this Report on Form ~~10-Q. To date, we have funded share purchases under~~10-Q for more information regarding our share repurchase ~~program from our available cash balance, and anticipate we will continue to do so.~~program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

INDEX

ITEM 6. EXHIBITS

The exhibit numbers in the following list correspond to the number assigned to such exhibits in the Exhibit Table of Item 601 of Regulation S-K:


Exhibit ~~Number~~ No.			Description
~~10.71~~31.1		Form of Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan Non-Qualified Stock Option Award Agreement (employees (including executive officers))*

~~10.72~~	~~Form of Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan Restricted Stock Unit Award Agreement (~~employees (including executive officers))*

~~10.73~~	~~Form of Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan Performance Share Unit Award Agreement~~ (employees (including executive officers))*

~~31.1~~	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Interim Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
~~101.INS~~	XBRL Instance Document - The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			XBRL Taxonomy Extension Schema
101.CAL			XBRL Taxonomy Extension Calculation Linkbase
101.DEF			XBRL Taxonomy Extension Definition Linkbase
101.LAB			XBRL Taxonomy Extension Label Linkbase
101.PRE			XBRL Taxonomy Extension Presentation Linkbase
104			Cover Page Interactive Data File - The Cover Page Interactive Data File does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*~~Management contract, or compensatory plan or agreement.~~

INDEX

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~CABOT MICROELECTRONICS CORPORATION~~
			~~[Registrant]~~CMC MATERIALS, INC.
			[Registrant]
~~Date: February 7, 2018~~		~~By:~~	~~/s/ SCOTT D. BEAMER~~
Date: May 5, 2022		By:	~~Scott D. Beamer~~/s/ JEANETTE A. PRESS
			~~Vice President and~~Jeanette A. Press Interim Chief Financial Officer
	and Principal Accounting Officer [Principal Financial Officer]

~~Date: February 7, 2018~~		~~By:~~	~~/s/ THOMAS S. ROMAN~~
			~~Thomas S. Roman~~
	~~Corporate Controller~~
	~~[Principal Accounting Officer]~~

	Amortized Cost		Unrealized Losses			Estimated Fair Value
Available-for-sale securities:

Asset backed securities	$	4,460	$	(2	)	$	4,458
Certificates of deposit		6,303		(4	)		6,299
Commercial paper		3,083		(1	)		3,082
Corporate debt securities		25,491		(36	)		25,455
U.S. Treasuries		8,483		(2	)		8,481
U.S. government agency securities		498		(1	)		497
Total available-for-sale securities	$	48,318	$	(46	)	$	48,272

	Amortized Cost		Estimated Fair Value
Mature in one year or less	$	30,587	$	30,568
Mature after one year through four years		17,731		17,704
	$	48,318	$	48,272

	December 31, 2017				September 30, 2017
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Other intangible assets subject to amortization:
Product technology	$	46,351	$	18,904	$	42,287	$	17,604
Acquired patents and licenses		8,270		8,244		8,270		8,241
Trade secrets and know-how		2,550		2,550		2,550		2,550
Customer relationships, distribution rights and other		28,459		16,380		28,229		15,421

Total other intangible assets subject to amortization		85,630		46,078		81,336		43,816

Other intangible assets not subject to amortization:
In-process technology		-				4,000
Other indefinite-lived intangibles*		1,190				1,190
Total other intangible assets not subject to amortization		1,190				5,190

Total other intangible assets	$	86,820	$	46,078	$	86,526	$	43,816

Fiscal Year	Estimated Amortization Expense
Remainder of 2018	$	5,521
2019		7,119
2020		7,115
2021		7,108
2022		7,108

	December 31, 2017		September 30, 2017

Auction rate securities (ARS)	$	5,319	$	5,319
Long-term contract assets		2,333		2,115
Other long-term assets		2,268		2,154
Other long-term investments		1,157		929
Total	$	11,077	$	10,517

Fiscal Year	Principal Repayments
Remainder of 2018		7,656
2019		133,438
Total	$	141,094

		Asset Derivatives				Liability Derivatives
	Consolidated Balance Sheet Location	December 31, 2017		September 30, 2017		December 31, 2017		September 30, 2017
Derivatives designated as hedging instruments
Interest rate swap contracts	Prepaid expenses and other current assets	$	181	$	-	$	-	$	-
	Other long-term assets	$	173	$	117	$	-	$	-
	Accrued expenses, income taxes payable and other current liabilities	$	-	$	-	$	-	$	31

Foreign exchange contracts designated as net investment hedge	Other long-term liabilities	$	-	$	-	$	5,814	$	1,442

Derivatives not designated as hedging instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	25	$	146	$	-	$	-
	Accrued expenses, income taxes payable and other current liabilities	$	-	$	-	$	232	$	408

Balance at September 30, 2017	$	920
Loss on net investment hedge		4,372
Tax benefit		(1,131	)
Balance at December 31, 2017	$	4,161

	Foreign Currency Translation		Cash Flow Hedges			Pension and Other Postretirement Liabilities			Available-for-Sale Securities			Total
Balance at September 30, 2017	$	5,239	$	46		$	(1,336	)	$	-		$	3,949
Foreign currency translation adjustment, net of tax of $(1,150)		7,144		-			-			-			7,144
Unrealized loss on available-for-sale securities, net of tax of $0		-		-			-			(46	)		(46	)
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $80		-		229			-			-			229
Reclassification adjustment into earnings, net of tax of $(11)		-		(30	)		-			-			(30	)
Balance at December 31, 2017	$	12,383	$	245		$	(1,336	)	$	(46	)	$	11,246

	Three Months Ended December 31,
	2017			2016
Income statement classifications:
Cost of goods sold	$	788		$	541
Research, development and technical		529			419
Selling and marketing		342			339
General and administrative		4,202			1,614
Total share-based compensation expense		5,861			2,913
Tax benefit		(1,241	)		(947	)
Total share-based compensation expense, net of tax	$	4,620		$	1,966

	Three Months Ended December 31,
Revenue:	2017		2016
Tungsten slurries	$	62,877	$	55,301
Dielectric slurries		31,732		29,282
Polishing pads		18,879		16,209
Other Metals slurries		16,468		15,780
Engineered Surface Finishes		8,530		5,024
Data storage slurries		1,493		1,658
Total revenue	$	139,979	$	123,254

CONTRACTUAL OBLIGATIONS			Less Than		1-3		3-5		After 5
(In millions)	Total		1 Year		Years		Years		Years
Long-term debt	$	141.1	$	16.4	$	124.7	$	-	$	-
Interest expense and fees on long-term debt		5.3		3.8		1.5		-		-
Purchase obligations		43.1		35.7		5.4		2.0		-
Operating leases		21.9		3.6		5.3		3.8		9.2
Severance agreements		3.0		2.4		0.6		-		-
Other long-term liabilities *		35.0		-		4.3		4.0		26.7
Total contractual obligations	$	249.4	$	61.9	$	141.8	$	9.8	$	35.9

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
Oct. 1 through Oct. 31, 2017		5,975	$	84.98		5,975	$	121,485
Nov. 1 through Nov. 30, 2017		6,106	$	98.18		5,775	$	120,918
Dec. 1 through Dec. 31, 2017		39,313	$	92.66		5,500	$	120,401
Total		51,394	$	92.42		17,250	$	120,401